On page 215 is Manager’s Misfit return incorrect? They have errata and the errata corrects it but I think it’s wrong too.
It says in text, that the manager underperformed the investors benchmark (24.5% for the manager versus 25% for the MSCI Pacific).
I’m assuming that the misfit return = 24.5 - 25 = -0.5%.
The errata says Misfit return = 24 - 25 = -1%. Why would they subtract the investors benchmark from the normal portfolio. Is this wrong?
It’s just a name. The “misfit” active return is similar to the Style Return mentioned earlier in the reading.
P = M + S + A
If you compute the manager’s return minus investor’s benchmark return, you would get the misfit active return (style return) plus true misfit return (active return).
P - M = S + A
The word “misfit” is used to measure the part of the manager’s return that is a result of using a benchmark that is inappropriate for the manager’s style.
great. Thank you