@article {Vardharaj37, author = {Raman Vardharaj and Frank J. Fabozzi and Frank J. Jones}, title = {Determinants of Tracking Error for Equity Portfolios}, volume = {13}, number = {2}, pages = {37--47}, year = {2004}, doi = {10.3905/joi.2004.412305}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The theoretical and empirical literature in finance has focused primarily on the standard deviation of return as the appropriate measure of risk. Yet for asset managers whose benchmark is a market index, the more appropriate measure is tracking error (the standard deviation of the difference in the portfolio{\textquoteright}s returns and the benchmark{\textquoteright}s returns). For an asset manager, the risk of significantly underperforming the benchmark rises as the tracking error increases. Thus tracking error is an important indicator of portfolio performance and should be monitored frequently. The determinants of tracking error for equity portfolios include number of stocks in the portfolio, portfolio market capitalization and style difference relative to the benchmark, sector deviation from the benchmark, benchmark volatility, and portfolio beta.}, issn = {1068-0896}, URL = {https://joi.pm-research.com/content/13/2/37}, eprint = {https://joi.pm-research.com/content/13/2/37.full.pdf}, journal = {The Journal of Investing} }