The Use and Misuse of Tracking Error
研究了主动管理型股票组合中跟踪误差的固定限制是否合理，发现当基准指数（如标普500）集中度变化时，固定跟踪误差会损害分散化投资经理的业绩，而灵活的跟踪误差策略更能创造财富。
Equity portfolio tracking error to a benchmark is a most ubiquitous restriction for active portfolios as prescribed by fiduciaries. The restriction is typically a tight range with minimum and maximum ex-ante extremes. The typical capitalization-weighted benchmark (i.e., the S&P 500 Index) has significant changes in diversification character overtime. This brings into question the sensibility of holding tracking error (TE) constant for a skilled active manager. The authors demonstrate that as the concentration of names in the S&P 500 increases, its diversification fades. When this happens, constant tracking error is the enemy of the skilled diversified manager, other things equal. Using multivariate classification and regression trees (CART), they show that high tracking dominates low tracking when index concentration is low, trending lower, and return dispersion is high. Low tracking dominates when the opposite index conditions exist. The authors conclude that the power of a <italic>flexible</italic> TE process in wealth creation is dominant over <italic>inflexibility</italic> in the benchmark.