Tracking Error Applied to Asset Allocation

• Main Authors: Hui-Wen Fan, 范惠雯
• Other Authors: Chi-Lung Chen
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/bfab67

碩士 === 銘傳大學 === 財務金融學系碩士班 === 93 === Recently the concepts of relative return and tracking error have getting attention in Taiwan. Figelman (2004) proposed an optimal risk budgeting model to allocate best weights of fund managers. This thesis investigates whether this optimal risk budgeting model can be applied to Taiwan’s stock market. In addition, Figelman assumes the asset class allocations have already been determined and focuses on a fund’s active management decision. In addition we make an extension by checking the sensitivity of weight to asset class. Then, in order to test the applicability of optimal risk budgeting model, we hold 3 years of monthly data for out-of sample performance evaluation. We find several conclusions that the optimal risk budgeting model indeed can be applied to Taiwan’s stock market and the more total tracking error amount investors have, the more they have chance to make profit by actively managing their portfolio. To mention the sensitivity of weight to the asset class our outcome is that asset class efficient frontiers all have declining slope and the portfolio return in different weight has the same trend. As for the performance evaluation we find the portfolio via this risk budgeting model almost can gain higher return than benchmark. But in certain period’s return have bad performance mainly result from certain special economic situation. Additionally, we find that the extremely weight to asset class is the better choice to investors.