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Analyzing Active Investment Strategies

abstract For investors it is important to know what trading strategies an asset manager pursues to generate excess returns. In this paper, we propose an alternative approach for analyzing trading strategies used in active investing. We use tracking error variance (TEV) as a measure of activity and introduce two decompositions of TEV for identifying different investment
strategies. To demonstrate how a tracking error variance
decomposition can add information, a simulation study testing the performance of different methods for strategy analysis is
conducted. In particular, when investment strategies contain
random components, TEV decomposition is found to deliver important additional information that traditional return decomposition methods are unable to uncover.

http://www.manuel-ammann.com/pdf/Ammann_Tracking_Error_Varia nce_Decomposition_Final.pdf
   
type journal paper
   
keywords Active investing, Tracking error, tracking error variance
   
language English
kind of paper journal article
date of appearance 21-10-2006
journal The Journal of Portfolio Management
publisher Institutional Investor Inc. (New York)
ISSN 0095-4918
volume of journal 33
number of issue 1
page(s) 56-67
review double-blind review
   
citation Ammann, M., Kessler, S., & Tobler, J. (2006). Analyzing Active Investment Strategies. The Journal of Portfolio Management, 33(1), 56-67.