The Journal of Portfolio Management · 2001 · 20 citations · 5 references
BusinessFinanceFinancial ManagementFinancial EconomicsInvestment ManagementPortfolio ManagementAsset AllocationForecast Error AnalysisInvestment TheoryPortfolio AnalyticsPortfolio OptimizationPortfolio TheoryExpected Information GainInformation RatiosInvestment Decision AnalysisInvestment Decision CriteriaInvestment Decision RulesInvestment ForecastingTracking Error AnalysisTracking Error Minimization
This article presents a framework for allocating partial tracking errors to investment decisions in order to maximize the expected information ratio of an actively managed portfolio. The tracking error allocation framework is a three–step process: 1) identifying the independent investment decisions; 2) ranking the forecasting capabilities for the investment decisions; and 3) calculating the optimum partial tracking errors, given an overall tracking error limit. The key result is an understandable and transparent rule that says the target tracking error for each investment decision should be proportional to the corresponding expected information ratio. The authors illustrate the framework using examples that show some interesting practical consequences of an optimum tracking error allocation.
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Thomas Goodwin · Financial Analysts Journal · 1998 · 278 citations
Alpha is Volatility Times IC Times Score
Richard C. Grinold · The Journal of Portfolio Management · 1994 · 100 citations
The Information Ratio and Performance
Francis Gupta, Robertus Prajogi, Eric Stubbs · The Journal of Portfolio Management · 1999 · 41 citations