Quantitative Stock Selection: Low Tracking Error Selection

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Quantitative Stock SelectionLow Tracking Error
Selection

• Campbell R. Harvey
• Duke University
• National Bureau of Economic Research

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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

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Low Tracking Error Selection

• 4. TEstd.dev (portfolio return-benchmark return)
• 5. Extra constraints might be added to the final
  under/overweighting to avoid excessive sector and
  style exposures