Tracking error volatility measures the volatility of the difference between the performance of a fund and the performance of its benchmark. The more a fund manager has attempted to beat his/her benchmark of reference by overweighing/underweighing selected stocks, the greater this difference will be (both negatively and positively). A high TEV value indicates an actively managed fund (in other words, the fund manager has attempted to beat the benchmark and not simply to replicate it); on the other hand, a low TEV value indicates a passively managed fund.
Editor: Mirko IORI
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