Abstract
Ekholm (2012) presents a method for measuring portfolio manager activity risk without knowledge of portfolio holdings. It produces estimates of idiosyncratic return variance (ActiveAlpha) and beta variance (ActiveBeta). Ekholm (2014) develops the method one step further and shows how portfolio variance can be explained by passive systematic risk factor exposure and two components of active risk (SelectionShare and TimingShare). The method can be applied on any portfolio for which adequate benchmark index returns are available, e.g. mutual funds, proprietary portfolios, and even hedge funds. We explain the method through some illustrative examples and provide a link to the application used to create the examples.
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