Could someone please explain 2nd highlighted point?
Thanks 🙏
Q Identification Tag : Sapra and Hunjan (2013) derived a relationship between active risk, Active Share, and factor exposure for an unconstrained investor, assuming a single-factor model.
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Thankyou sir for explanation.
doubt I have here is
You mentioned active risk coming from 3 things-
1. Different factor exposure from sensex
2. Overweight/underweight security in sensex(which you regarded as active share)
3. Idiosyncratic risk
So in net exposure active risk will totally attributed to active share
My question – if we would have taken different exposure that would also be coming under active share?? because for taking different exposure we might have choosen different securities or there weight from benchmark (sensex) so I guess that would also lead to active share ..
I guess i am thinking about active share wrongly..
Please correct me..