Practical Portfolio Performance Measurement and Attribution, with CD-ROM

Practical Portfolio Performance Measurement and Attribution......Page 4
Contents......Page 10
Acknowledgements......Page 18
Why measure portfolio performance?......Page 20
Role of performance measurers......Page 21
Book structure......Page 22
Simple return......Page 24
Simple internal rate of return......Page 26
Modified internal rate of return......Page 27
Simple Dietz......Page 29
ICAA method......Page 30
Modified Dietz......Page 31
True time-weighted......Page 32
Unit price method......Page 33
Time-weighted versus money-weighted rates of return......Page 35
Index substitution......Page 37
Analyst’s test......Page 38
Hybrid methodologies......Page 39
Which method to use?......Page 40
Self-selection......Page 41
Annualised returns......Page 46
Continuously compounded returns......Page 47
Gross- and net-of-fee calculations......Page 48
Estimating gross- and net-of-fee returns......Page 49
Component weight......Page 51
Carve-outs......Page 53
Base currency and local returns......Page 54
Commercial indexes......Page 58
Aggregate price index (price-weighted index)......Page 59
Laspeyres index......Page 60
Equal-weighted indexes......Page 61
Hedged indexes......Page 62
Customised (or composite) indexes......Page 63
Fixed weight and dynamised benchmarks......Page 64
Blended (or spliced) indexes......Page 65
Down capture indicator......Page 66
Peer groups and universes......Page 67
Percentile rank......Page 68
Notional funds......Page 69
Arithmetic excess return......Page 70
Geometric excess return......Page 71
Symmetrical performance fees (or fulcrum fees)......Page 74
Asymmetrical performance fees......Page 75
Performance fee caps......Page 76
Equalisation......Page 77
Risk management versus risk control......Page 80
Mean absolute deviation......Page 81
Standard deviation......Page 82
Sharpe ratio (reward to variability)......Page 83
Risk-adjusted return: M 2......Page 86
Differential return......Page 87
GH1 (Graham and Harvey 1)......Page 88
Regression analysis......Page 89
Regression epsilon (R)......Page 90
Bull beta (+)......Page 91
Correlation ()......Page 92
Correlation and risk-adjusted return: M 3......Page 93
Treynor ratio (reward to volatility)......Page 94
Fama decomposition......Page 96
Tracking error......Page 97
Information ratio......Page 99
Normal (or Gaussian) distribution......Page 101
Skewness (Fisher’s or moment skewness)......Page 102
Kurtosis (Pearson’s kurtosis)......Page 103
Sample kurtosis......Page 104
Risk-adjusted performance measures for hedge funds......Page 105
Drawdown deviation......Page 107
Sterling ratio......Page 108
Burke ratio......Page 109
Lake ratio......Page 110
Upside risk......Page 111
Omega ratio ()......Page 113
Omega–Sharpe ratio......Page 114
Kappa (l )......Page 115
Volatility skewness......Page 116
Variability skewness......Page 117
Skewness–kurtosis ratio......Page 118
Historical simulation (or non-parametric)......Page 119
Conditional Sharpe ratio......Page 120
M 2 for Sortino......Page 121
Omega excess return......Page 122
Macaulay duration......Page 123
Portfolio duration......Page 124
Duration to worst......Page 126
Which risk measures to use?......Page 127
Fund rating systems......Page 128
Risk control structure......Page 133
Arithmetic attribution......Page 136
Asset allocation......Page 137
Security (or stock) selection......Page 138
Interaction......Page 139
Brinson and Fachler......Page 144
Interaction......Page 145
Geometric excess return attribution......Page 148
Stock selection......Page 149
Sector weights......Page 152
Ankrim and Hensel......Page 154
Karnosky and Singer......Page 159
Na¨ıve currency attribution......Page 165
Compounding effects......Page 167
Geometric currency allocation......Page 172
Currency timing......Page 173
Interest rate differentials......Page 174
Revised currency allocation......Page 179
Revised country allocation......Page 180
Incorporating forward currency contracts......Page 182
Other currency issues......Page 189
Par yield curve......Page 190
Wagner and Tito......Page 191
Weighted duration attribution......Page 192
Geometric fixed income attribution......Page 197
Campisi framework......Page 200
Shift......Page 206
Carry......Page 207
Yield curve decomposition......Page 208
Carino......Page 210
Menchero......Page 213
GRAP method......Page 215
Frongello......Page 218
Davies and Laker......Page 220
Multi-period geometric attribution......Page 223
Annualisation of excess return......Page 225
Attribution annualisation......Page 226
Holding-based (or buy/hold) attribution......Page 228
Security-level attribution......Page 229
Transaction costs......Page 231
Off-benchmark (or zero-weight sector) attribution......Page 232
Multi-level attribution......Page 234
Attribution standards......Page 240
Evolution of performance attribution methodologies......Page 241
Risk-adjusted attribution......Page 242
Selectivity......Page 243
Equity index future......Page 246
Attribution including equity index futures......Page 247
Leverage (or gearing)......Page 251
Swaps......Page 254
Equity index swaps......Page 255
Options......Page 256
Option price sensitivity (the Greeks)......Page 257
Convertible bonds......Page 258
Attribution analysis using options, warrants and convertible bonds......Page 259
Market neutral attribution......Page 260
Attribution for 130/30 funds (or extended short funds)......Page 262
Why do we need performance presentation standards?......Page 266
Advantages for asset managers......Page 267
Composites......Page 269
Calculation......Page 270
Structure of the standards......Page 271
Verification......Page 272
Guidance statements......Page 273
Carve-outs......Page 274
Portability......Page 275
Error correction......Page 276
Interquartile range......Page 277
Maintaining compliance......Page 278
Appendix A Simple Attribution......Page 280
Appendix B Multi-currency Attribution Methodology......Page 283
Appendix C EIPC Guidance for Users of Attribution Analysis......Page 290
Appendix D European Investment Performance Committee – Guidance on Performance Attribution Presentation......Page 294
Appendix E The Global Investment Performance Standards......Page 306
Appendix F Guidance Statement on Composite Definition......Page 343
Appendix G Sample Global Investment Performance Standards Presentation......Page 353
Appendix H Calculation Methodology Guidance Statement......Page 355
Appendix I Definition of Firm Guidance Statements......Page 364
Appendix J Treatment of Carve-outs Guidance Statement......Page 370
Appendix K Significant Cash Flow Guidance Statement......Page 375
Appendix L Guidance Statement on Performance Record Portability......Page 380
Appendix M Guidance Statement on the Use of Supplemental Information......Page 384
Appendix N Guidance Statement on Recordkeeping Requirements of the GIPS Standards......Page 388
Appendix O Useful Websites......Page 395
Bibliography......Page 396
Index......Page 400