RT Journal Article
SR Electronic
T1 A Mean/Variance Analysis of Tracking Error
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 13
OP 22
DO 10.3905/jpm.1992.701922
VO 18
IS 4
A1 Richard Roll
YR 1992
UL https://pm-research.com/content/18/4/13.abstract
AB Investment managers are often hired to produce positive return performance over a benchmark index while keeping tracking error volatility to a minimum. This article provides the exact composition of the particular portfolio for the manager who faithfully adheres to this strategy. Usually the selected portfolio will not be total return mean/variance efficient. It will have a beta greater than 1.0 and cannot dominate the benchmark by having a lower total volatility and a higher expected return. Constraining the beta can improve the managed portfolio.