Benchmark Error

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Dictionary Says

Definition of 'Benchmark Error'

A situation in which the wrong benchmark is selected in a financial model. This error can create large dispersions in an analyst or academic's data, but can easily be avoided by selecting the most appropriate benchmark at the onset of an analysis.
Investopedia Says

Investopedia explains 'Benchmark Error'

When creating a market portfolio under the capital asset pricing model (CAPM), it is important to use the most appropriate benchmark, or market, in your calculations. If, for example, you want to create a portfolio of American stocks using the CAPM, you would not use the Nikkei - a Japanese index - as your benchmark.

Accordingly, if you want to compare your portfolio returns, you should use an index that contains similar stocks. For example, if your portfolio is tech-heavy, you should use the Nasdaq as your benchmark, rather than the S&P 500.
Search results for

'Benchmark Error'

  • Is Your Portfolio Beating Its Benchmark?

    http://www.investopedia.com/articles/stocks/07/MPT-information-ratio.asp
    ... ratio (IR) is designed to measure how many units of return an investor can achieve
    over a predefined benchmark for each unit of tracking error risk taken. ...

  • Is tracking error a significant measure for determining ex-post ...

    http://www.investopedia.com/ask/answers/06/trackingexpost.asp
    ... As you might expect, a fund that has a high tracking error is not expected to follow
    the benchmark closely, and it is generally seen as being risky. ...

  • Active Share Measures Active Management

    http://www.investopedia.com/articles/mutualfund/07/active-share.asp
    ... a mutual fund relies on methods that compare a fund's historical returns to those
    of its benchmark index. One such method, tracking error volatility, measures ...

  • Make Your Portfolio Safer With Risky Investments

    http://www.investopedia.com/articles/financial-theory/08/reduce-risk.asp
    ... risky equity. The risk that your investment will not match that of your benchmark
    is called tracking error or active risk. The greater ...

  • ETF Tracking Errors: Is Your Fund Falling Short?

    http://www.investopedia.com/articles/exchangetradedfunds/09/etf-tracking-errors.asp
    ... this practice can be used to lower tracking error if so desired. Currency Hedging
    International ETFs with currency hedging may not follow a benchmark index due ...

  • Does Your Investment Manager Measure Up?

    http://www.investopedia.com/articles/pf/07/investment_manager_stats.asp
    ... standard deviation of the difference between the manager's return and the benchmark
    return. (For further insight, see Is tracking error a significant measure ...

  • ETF Tracking Errors: Protect Your Returns

    http://www.investopedia.com/articles/exchangetradedfunds/09/tracking-error-etf-funds.asp
    ... Finally, a visual inspection of the fund's returns versus its benchmark index is
    a ... and you will stand a good chance of avoiding a tracking error that might ...

  • The Hidden Differences Between Index Funds

    http://www.investopedia.com/articles/mutualfund/03/061103.asp
    ... The tracking error is usually expressed as a standard deviation, and a large ... are
    large inconsistencies between the return of an index fund and its benchmark. ...

  • Evaluating Bond Funds: Keeping It Simple

    http://www.investopedia.com/articles/mutualfund/05/062805.asp
    ... Given that the goal of an ETF is to minimize tracking error against its benchmark,
    its makeup should be representative of its benchmark. ...

  • 7 Common Investor Mistakes

    http://www.investopedia.com/articles/stocks/07/mistakes.asp
    ... (Keep reading about benchmarks in Benchmark Your Returns With Indexes.); Asset
    allocation - What percentage of your total portfolio will you allocate to US ...

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