CPierce Wrote: ------------------------------------------------------- > percysmith Wrote: > -------------------------------------------------- > ----- > > Wasn’t there a size characteristic? Was size > > relevant? > > that’s what she said Golden
there is no one particular benchmark that is considered ‘efficient’ over the others. the benchmark is always where you get your beta…as an active manager you are trying to earn alpha over the benchmark so you want your systematic (beta) exposure to be irrelevant when you’re measuring your performance. therefore you want lowest tracking error.
I believe the ansswer was the one with the highest tracking error (because the mandate was to manage the portfolio actively).
hm…that’s a good point…but i think the highest tracking error is someone that comes up when you’re analyzing investment styles and figuring out if its passive, enhanced, active etc…in that cause if you see a high tracking error it indicates active. regarding 'test of benchmark quality, the CFA text on page 146 of V6 says “a good benchmark should reduce the noise in the performance evaluation process. Thus, the volatility (standard deviation) of an account’s returns relative to a good benchmark should be less than the volatility of the accounts returns versus other alternative benchmark. Such a result indicates that the benchmark is capturing important aspects of the manager’s investment style.”