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Tracking Error and Active Returns

This articles presents an illustration to various risk metrics used for the analysis of active return and active risk. In particular, we will see:

  • the difference between ex post and ex ante measures
  • the definition of active return, active weights and tracking error
  • the pitfalls of tracking error in estimating active risk
  • a new measure of risk (MATE) that accounts for such pitfalls
  • considerations on model selection and estimation of the ex ante tracking error

Find the source code for this article in the offical Github repository at the link: github.com/gbaglini/baglinifinance

gbaglini
gbaglini
Quantitative Researcher & Investment Analyst
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