Practical portfolio performance measurement and attribution / Carl R. Bacon.

Format:

Book

Author/Creator:

Bacon, Carl R., author.

Series:

Wiley finance

Language:

English

Subjects (All):

Investment analysis.

Portfolio management.

Business enterprises--Finance.

Business enterprises.

Corporations--Finance.

Corporations.

Physical Description:

1 online resource (xix, 560 pages)

Edition:

Third edition.

Place of Publication:

Hoboken, NJ : Wiley, 2023.

Summary:

"Performance measurement and attribution are key tools in informing investment decisions and strategies. Performance measurement is the quality control of the investment decision process, enabling money managers to calculate return, understand the behavior of a portfolio of assets, communicate with clients and determine how performance can be improved. The process of adding value via benchmarking, asset allocation, security analysis, portfolio construction, and executing transactions is collectively described as the investment decision process. There are many stakeholders in the investment decision process; this book focuses on the investors or owners of capital and the firms managing their assets (asset managers or individual portfolio managers)"-- Provided by publisher.

Contents:

Cover

Title Page

Copyright

Contents

Acknowledgements

1 Introduction

Why Measure Portfolio Performance?

The Performance Measurement Process

The Purpose of This Book

The Role of Performance Analysts

Book Structure

2 The Asset Management Industry

Asset Classes

Public Equities

Bonds (or Fixed Income)

Cash (and near cash)

Private Assets

Real estate

Private equity

Private debt

Infrastructure

Natural resources

Commodities

Derivatives

Futures

Forwards

Swaps

Options

Option price sensitivity (the Greeks)

Warrants

Convertible bonds

Contracts for difference (CFDs)

Overlay strategies

Currency

Hedge Funds

Asset Allocation

Strategic asset allocation

Tactical asset allocation

3 The Mathematics of Portfolio Return

Simple Return

Continuously Compounded (or Logarithmic) Returns

Money‐weighted Returns (MWRs)

Internal rate of return (IRR)

Ex‐ante internal rate of return

Simple internal rate of return

Ex‐post internal rate of return

Simple Dietz

ICAA method

Modified Dietz

Time‐weighted Returns (TWRs)

True time‐weighted

Unit price method

Unit price method with distributions

Time‐weighted versus Money‐weighted Rates of Return

Approximations to the Time‐weighted Return

Index substitution

Regression method (or β method)

Analyst's test

Hybrid Methodologies

Linked modified Dietz

BAI method (or linked IRR)

Which Method to Use?

Late trading and market timing

Self‐selection

Large Cash Flow

Self‐selection of methodologies

Annualised Returns

Since‐inception internal rate of return (SI‐IRR)

Modified IRR (MIRR)

Return hiatus

Gross‐ and Net‐of‐fee Calculations

Estimating gross‐ and net‐of‐fee returns

Initial fees

Performance fees

Asymmetric or symmetric.

Crystallisation

Performance fees in practice

Equalisation

Reporting hierarchy

Overlay Strategies

Overlay performance return calculations

Base Currency and Local Returns

Currency conversions

Hedged Returns

Currency overlay returns

Perfectly hedged returns

Portfolio Component Returns

Money‐weighted component returns

Time‐weighted component returns

End of day

Beginning of day

Intra‐day weighted

Differentiated

Actual time

Rule‐based

Extremely large cash flows

Which timing assumption to use for time‐weighted returns?

Carve‐outs

Sub‐portfolios

Cash sectors

Individual security returns

Multi‐period component returns

Abnormal returns

Short positions

Contribution to Return

Composite Returns

4 Benchmarks

Benchmarks

Benchmark attributes

Best benchmark practice

The Role of Benchmarks

Types of Benchmarks

Commercial Indexes

Calculation methodologies

Aggregate price index (price‐weighted index or Carli type)

Geometric (or Jevons type) index

Market capitalisation index

Laspeyres index

Paasche index

Marshall-Edgeworth index

Fisher index

Equal‐weighted indexes

Fundamental indexes

Optimised indexes (efficient or minimum variance indexes)

Style‐ and factor‐based indexes

Fixed income indexes

Index providers

Choice of index provider

Self‐indexing

Benchmark regulation

Choice of index

Currency effects in benchmarks

Hedged indexes

Customised Indexes

Capped indexes

Peer Groups and Universes

Percentile rank

Random Portfolios

Exchange‐traded Funds (ETFs)

Target Returns

Blended Benchmarks (or Balanced Benchmarks)

Fixed‐weight and dynamised benchmarks

Spliced Indexes

Money‐weighted Benchmarks (or Public Market Equivalents)

Normal Portfolio

Benchmark Statistics.

Index turnover

Up‐capture indicator

Down‐capture indicator

Up‐number ratio

Down‐number ratio

Up‐percentage ratio

Down‐percentage ratio

Percentage gain ratio

Excess Return

Arithmetic excess return

Geometric excess return

5 Risk

Definition of Risk

Risk types

Risk management versus risk control

Risk aversion

Ex‐post and ex‐ante

Descriptive Statistics

Mean (or arithmetic mean)

Mean absolute deviation (or mean deviation)

Variance

Bessel's correction (population or sample, n or n - 1)

Sample variance

Standard deviation (variability or volatility)

Annualised risk (or time aggregation)

The central limit theorem

Frequency and number of data points

Normal (or Gaussian) distribution

Histograms

Skewness (Fisher's or moment skewness)

Sample skewness

Kurtosis (Pearson's kurtosis)

Excess kurtosis (or Fisher's kurtosis)

Sample kurtosis

Bera‐Jarque statistic (or Jarque‐Bera)

Covariance

Sample covariance

Correlation (ρ)

Sample correlation

Performance Appraisal

Sharpe ratio (reward to variability, Sharpe index)

Roy ratio

Risk‐free rate

Alternative Sharpe ratio

Revised Sharpe ratio

Adjusted Sharpe ratio

Skew‐adjusted Sharpe ratio

Relative Risk

Tracking error (or tracking risk, relative risk, active risk)

Information ratio

Geometric information ratio

Modified information ratio

Regression Analysis

Regression equation

Regression alpha

Regression beta

Regression epsilon

Capital asset pricing model (CAPM)

Beta (β) (systematic risk or volatility)

Jensen's alpha (Jensen's measure or Jensen's differential return or ex‐post alpha)

Annualised alpha

Bull beta ( +)

Bear beta ( −)

Bear beta (&amp

rmbeta

−)

Beta timing ratio

Market timing

Systematic risk

Correlation.

R2 (or coefficient of determination)

Specific (or residual) risk

Treynor ratio (reward to volatility)

Appraisal ratio (or Treynor‐Black ratio)

Factor Models

Fama decomposition

Selectivity

Diversification

Net selectivity

Fama‐French three‐factor model

Three‐factor alpha (or Fama‐French alpha)

Carhart four‐factor model

Four‐factor alpha (or Carhart's alpha)

Multi‐factor models

Drawdown

Average drawdown

Maximum drawdown

Largest individual drawdown

Recovery time (or drawdown duration)

Drawdown deviation

Ulcer index

Pain index

Calmar ratio (or drawdown ratio)

MAR ratio

Sterling ratio

Sterling‐Calmar ratio

Burke ratio

Modified Burke ratio

Martin ratio (or ulcer performance index)

Pain ratio

Partial Moments

Downside risk (or semi‐standard deviation)

Downside potential

Pure downside risk

Half variance (or semi‐variance)

Upside risk (or upside uncertainty)

Mean absolute moment

Omega ratio (Ω)

Bernardo and Ledoit (or gain-loss) ratio

d ratio

Omega-Sharpe ratio

Sortino ratio

Reward to half‐variance

Downside‐risk Sharpe ratio

Sortino-Satchell ratio

Upside potential ratio

Volatility skewness

Variability skewness

Farinelli-Tibiletti ratio

Prospect ratio

Fixed Income Risk

Pricing fixed income instruments

Redemption yield (yield to maturity)

Weighted average cash flow

Duration (effective mean term, discounted mean term or volatility)

Macaulay duration

Macaulay-Weil duration

Modified duration

Portfolio duration

Effective duration (or option‐adjusted duration)

Duration to worst

Convexity

Modified convexity

Effective convexity

Portfolio convexity

Bond returns

Duration beta

Reward to duration

Miscellaneous Risk Measures

Hurst index (or Hurst exponent)

Bias ratio.

Active share

Value at risk (VaR)

Risk‐adjusted Return

M2

M2 excess return

Differential return

Adjusted M2

Skew‐adjusted M2

Types of Excess Return (or Alpha)

A Periodic Table of Risk Measures

Periodic table design

Why measure ex‐post risk?

Which risk measures to use?

Hedge funds

Smoothing

Outliers

Data mining

Time period

6 Return Attribution

What Is Attribution?

Definition

Attribution as an asset management tool

Early development

Types of Return Attribution

Returns‐based (regression or factor) attribution

Holdings‐based (or buy/hold) attribution

Transaction‐based attribution

Arithmetic Attribution

Brinson, Hood and Beebower

Asset allocation

Security (or stock) selection

Interaction

Brinson and Fachler

Geometric Excess Return Attribution

Stock selection

Sector Weights

Frequency of Analysis

Security‐level attribution

Transaction costs

Off‐benchmark (or zero‐weight sector) attribution

Attribution consistent with the investment decision process

Market‐neutral attribution

Attribution for 130/30 funds (or extended short funds)

Leverage (or gearing)

Attribution Including Derivatives

Attribution including equity index futures

Attribution analysis using options

Multi‐currency Attribution

Ankrim and Hensel

Karnosky and Singer

Geometric Multi‐currency Attribution

Naïve currency attribution

Compounding effects

Geometric currency allocation

Currency timing

Interest Rate Differentials

Revised currency allocation

Revised country allocation

Incorporating forward currency contracts

Summarising

Other currency issues

Fixed Income Attribution

The yield curve

Yield curve analysis

Carry

Credit (or spread)

Yield curve decomposition.

Wagner and Tito.

Notes:

Description based on print version record.

Includes bibliographical references and index.

ISBN:

9781119831976

1119831970

9781119831952

1119831954

OCLC:

1346125198