Dynamic Tracking Error and the Total Portfolio Approach
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arXiv
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| Hauptverfasser: | , , , , |
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| Format: | Preprint |
| Veröffentlicht: |
2026
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| _version_ | 1866917310507253760 |
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| author | Alankar, Ashwin Maymin, Allan Maymin, Philip Scholes, Myron Zhang, Sujiang |
| author_facet | Alankar, Ashwin Maymin, Allan Maymin, Philip Scholes, Myron Zhang, Sujiang |
| contents | The Total Portfolio Approach and Strategic Asset Allocation are widely viewed as competing frameworks for institutional portfolio management. We argue they differ in a single governance parameter: the tracking error constraint. Using U.S. equity and bond data from 2000 to 2026, with portfolio simulations spanning 2004 to 2026, we show that Sharpe ratios are statistically indistinguishable across the full constraint spectrum while the volatility of realized tracking error varies approximately 12-fold. The cost of constraints spikes during crises, when forward returns are richest and governance pressure to de-risk is strongest. Dynamic tracking error subsumes both approaches and provides boards with a more productive framework for investment governance. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_03213 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Dynamic Tracking Error and the Total Portfolio Approach Alankar, Ashwin Maymin, Allan Maymin, Philip Scholes, Myron Zhang, Sujiang Portfolio Management Risk Management The Total Portfolio Approach and Strategic Asset Allocation are widely viewed as competing frameworks for institutional portfolio management. We argue they differ in a single governance parameter: the tracking error constraint. Using U.S. equity and bond data from 2000 to 2026, with portfolio simulations spanning 2004 to 2026, we show that Sharpe ratios are statistically indistinguishable across the full constraint spectrum while the volatility of realized tracking error varies approximately 12-fold. The cost of constraints spikes during crises, when forward returns are richest and governance pressure to de-risk is strongest. Dynamic tracking error subsumes both approaches and provides boards with a more productive framework for investment governance. |
| title | Dynamic Tracking Error and the Total Portfolio Approach |
| topic | Portfolio Management Risk Management |
| url | https://arxiv.org/abs/2603.03213 |