A tracking error is one way that an index portfolio manager's performance can be evaluated.Two such measures that compare this are:

A) average and absolute tracking performance
B) average and maximum tracking performance
C) relative and absolute tracking performance
D) maximum and relative tracking performance

Question

A tracking error is one way that an index portfolio manager's performance can be evaluated.Two such measures that compare this are:

A) average and absolute tracking performance
B) average and maximum tracking performance
C) relative and absolute tracking performance
D) maximum and relative tracking performance

Quizplus · Accepted Answer

The success of the manager who has an investment strategy of matching an index is determined by how closely the benchmark index can be followed or tracked.Therefore,tracking error is one way that an index portfolio manager's performance can be evaluated.Two useful comparison measures are suggested.The first approach is to employ a tracking error,which highlights the average discrepancy.The second approach is the absolute average tracking deviation,which indicates whether the deviations fall within acceptable limits.Normally,tracking errors are calculated relatively frequently,and their average value becomes the performance measure.

A Tracking Error Is One Way That an Index Portfolio