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Why Active Managers Should Not Try to Maximize IR or Use Tracking Error as a Risk Measure
Attend live in London or online

Monday, 15th April  2019

Active managers must believe they will outperform their benchmarks in order to rationally take up the task of being an active manager. However, it must be arithmetically true that for every investor who outperforms fair benchmarks there must be other investors who expected to outperform, but actually underperformed. As such, we have the paradox that the intrinsic positive alpha expectations of roughly half of all active managers must be wrong.    

The conventional view of active risk does not reflect this clearly embedded “wrongness”. In essence, we have the perverse statistical description of a dispersion (standard deviation) around an unknown location (future mean alpha). To resolve this, we propose a new measure of active risk where the distribution of active returns is bi-modal with two modes with non-zero probability at both positive alpha and negative alpha. 

This talk is led by Dan diBartolomeo.

Speaker Biography
Mr. Dan diBartolomeo is President and founder of Northfield Information Services, Inc. Based in Boston since 1986, Northfield develops quantitative models of financial markets. He sits on boards of numerous industry organizations include IAQF and CQA and is past president of the Boston Economic Club. His publication record includes thirty books, book chapters and research journal articles. In January of 2018, he became co-editor of the Journal of Asset Management. Dan spent numerous years as a Visiting Professor at Brunel University. In 2010 he was given the “Tech 40” award by Institutional Investor magazine in recognition of his role in the discovery of the Madoff hedge fund fraud. He has also been admitted as an expert witness in litigation matters regarding investment management practices and derivatives in both US federal and state courts.