The importance of attributing active risk to benchmark-relative sources

Ben Davis and Jose Menchero

Journal of Risk

Abstract: ABSTRACT We demonstrate the importance of attributing active risk and return to the same underlying sources. We define and compare absolute and relative sources for securities, sectors and factors. We provide detailed examples and argue that benchmark-relative return sources are more appropriate for analyzing active portfolios. Usage of absolute return sources instead of relative return sources may lead to a number of problems, including a mismatch between risk and return sources, nonintuitive marginal contributions to risk, and flagging aggressive positions as risk reducing. These drawbacks are remedied by the use of benchmark-relative sources, which results in a set of consistent and intuitive effects.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/2223769/the-i ... ark-relative-sources (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ4:2223769

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().