What's Misfit Risk

CFA Level III
#1

can someone define and simplify what misfit risk is for me? (6 minutes).

#2

it is std of misfit returns

#3

If you have an active style mgr he should be compared to the relevant style benchmark. that would be his true active return. retrun of style benchmark compared to the investors benchmark(lets say S&P) would be the misfit return. the volatility of such return in misfit risk.

#4

I think what strikershank is asking for is an understanding/explanation of misfit risk, not the formal formula or definition. From all my readings on here, I can tell none of us really understand what the hell they mean by misfit risk or return for that matter or the relevance it has. :slight_smile: lol

#5

well explained by krishna1 (with more concise version by CSK) key is: “retrun of style benchmark compared to the investors benchmark”