Quantitative Stock Selection: Low Tracking Error Selection

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Presentation transcript:

Quantitative Stock Selection: Low Tracking Error Selection Campbell R. Harvey Duke University National Bureau of Economic Research

Low Tracking Error Selection 1. Long-Short implemented as an overlay for long only. 2. Scoring screen used to overweight (longs) and underweight (shorts). 3. Degree of over and underweighting determines the tracking error

Low Tracking Error Selection 4. TE=std.dev (portfolio return-benchmark return) 5. Extra constraints might be added to the final under/overweighting to avoid excessive sector and style exposures