Practical risk-adjusted performance measurement / Carl R. Bacon.

Format:

Book

Author/Creator:

Bacon, Carl R., author.

Series:

The Wiley finance series.

The Wiley Finance

Language:

English

Subjects (All):

Financial risk management.

Physical Description:

1 online resource (xix, 320 pages)

Edition:

Second edition.

Place of Publication:

Hoboken, New Jersey : Wiley, [2022]

Summary:

"Risk has an undeserved reputation within asset management for being an overly complex, mathematical subject. Practical Risk-adjusted Performance Measurement, Second Edition simplifies the subject and demonstrates with practical examples that risk is perfectly straightforward and not as complicated as it might seem. Written for risk and performance measurement practitioners from a buy side, asset management perspective, this book fills the gap between practice and theory, focusing on quantitative ex-post measures rather than the qualitative aspects of risk and providing numerous, practical worked examples of risk measures and their interpretation. This fully updated new edition takes the opportunity to add several new measures, provide additional explanations where necessary and add six new chapters. Chapters 1 and 2 introduce the subject of risk in the context of asset management firms and lay out the foundations by setting out the descriptive statistics that will be used in later chapters. The following chapters are structured according to the type of risk measure being considered: simple performance appraisal measures in Chapter 3, regression measures in Chapter 4, drawdown in Chapter 5, partial moments in Chapter 6, a new Chapter 7 based on Prospect Theory, extreme risk in Chapter 8, risk measures for fixed income instruments in Chapter 9, a new Chapter 10 including miscellaneous risk measures which are difficult to characterise and risk-adjusted returns in Chapter 11. Chapters 12 to 16 are entirely new chapters for this edition. Chapter 12 classifies all of the ex-post risk measures and describes how they are linked in the form of a periodic table of risk measures. Chapter 13 discusses the use of risk-adjusted performance measures in the context of performance fees. Chapter 14 discusses dashboard design in the context of risk measures, Chapter 15 looks at the important subject of how appraisal measures should be used in the context of manager selection and Chapter 16 introduces the four dimensions of performance and makes the call for ex-ante risk standards. In the penultimate Chapter 17 there is a discussion about which risk measures to use and finally in Chapter 18 their application in terms of risk control. Risk, like beauty, is very much in the eye of the beholder -- different risk measures will suit different investment strategies or investor concerns at different times so this book does not recommend any particular risk measure. Instead, it provides the necessary information and insight to determine one's own preferences in a concise and easy-to -navigate style."-- Provided by publisher.

Contents:

Cover

Title Page

Copyright Page

Contents

Preface

Acknowledgements

About the Companion Website

Chapter 1 Introduction

Definition of risk

Risk types

Risk management versus risk control

Risk aversion

Ex post and ex ante

Dispersion

Chapter 2 Descriptive Statistics

Mean (or arithmetic mean)

Annualised return

Continuously compounded returns (or log returns)

Winsorised mean

Mean absolute deviation (or mean deviation)

Variance

Mean difference (absolute mean difference or Gini mean difference)

Relative mean difference

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

Alternative risk annualisation methods

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

Autocovariance

Autocorrelation (or serial correlation)

Annualised variability if returns are autocorrelated

Chapter 3 Performance Appraisal Measures

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

Skewness-kurtosis ratio

Alternative adjusted Sharpe ratios

Smoothing‐adjusted Sharpe ratio

MAD ratio

Gini ratio

Relative risk

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

Relative skewness

Relative kurtosis

Information ratio

Geometric information ratio.

Modified information ratio

Adjusted information ratio

Skew‐adjusted information ratio

Chapter 4 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 (β+)

Bear beta (β−)

Beta timing ratio

Market timing

Systematic risk

Correlation

R2 (or coefficient of determination)

Specific (or residual) risk

The geometry of risk

Treynor ratio (reward to volatility)

Modified Treynor ratio

Appraisal ratio (or Treynor-Black ratio)

Modified Jensen

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)

Types of alpha

Multi‐factor models

Chapter 5 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

Active (or relative) drawdown

Chapter 6 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

Downside information ratio

Sortino-Satchell ratio

Kappa ratio.

Upside potential ratio

Volatility skewness

Variability skewness

Farinelli-Tibiletti Ratio

Gain-loss skewness

Downside skewness and kurtosis

Sortino ratio with higher order moments

Chapter 7 Prospect Theory

Prospect ratio

New Prospect ratio

Omega-Prospect ratio

Chapter 8 Extreme Risk

Extreme events

Extreme value theory

Value at risk (VaR)

Relative VaR

Ex-post VaR

Potential upside (gain at risk)

Percentile rank

VaR Calculation Methodology

Parametric VaR

Modified VaR

Historical simulation (or non‐parametric)

Monte Carlo simulation

Which Methodology for Calculating VaR Should Be Used?

VaR Interpretation

Frequency and time aggregation

Time horizon

Window length

Reward To VaR

Reward To Relative VaR

Double VaR Ratio

Conditional VaR (Expected Shortfall, Tail Loss, Tail VaR or Average VaR)

Upper CVaR or CVaR+

Lower CVaR or CVaR−

Tail gain (expected gain or expected upside)

Conditional Sharpe Ratio (Starr Ratio or Reward to Conditional VaR)

Modified Sharpe Ratio (Reward to Modified VaR)

Tail risk

Tail ratio

Rachev ratio (or R ratio)

Generalised Rachev ratio

Drawdown at risk

Conditional drawdown at risk

Reward to conditional drawdown

Generalised Z ratio

Chapter 9 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

Chapter 10 Miscellaneous Risk Measures.

Upside capture ratio (or Up capture indicator)

Downside capture ratio (or Down capture indicator)

Up/down capture (or Capture ratio)

Up number ratio

Down number ratio

Up percentage ratio

Down percentage ratio

Percentage gain ratio

Batting average (or Relative batting average)

Hurst index (or Hurst exponent)

Relative Hurst index (or Active Hurst)

Bias ratio

Active share

K ratio

Chapter 11 Risk‐Adjusted Return

M

M excess return

Differential return

GH1 (Graham and Harvey 1)

GH2 (Graham and Harvey 2)

Correlation and risk‐adjusted return M

Return adjusted for downside risk

Adjusted M

Skew‐adjusted M

Omega excess return

Chapter 12 A Periodic Table of Risk Measures

Periodic table design

Filling the periodic table

Notation

Chapter 13 Risk‐Adjusted Performance Fees

Performance fees

Asymmetric or symmetric

Performance fees in practice

Chapter 14 Performance Dashboards

Effective dashboards

Data visualisation tools

Chapter 15 Manager Selection

Asset manager selection

Manager evaluation

Portfolio evaluation

Monitoring and control

Chapter 16 The Four Dimensions of Performance

Ex‐post return (the traditional dimension)

Ex‐post risk (the neglected dimension)

Ex‐ante return (the unknown dimension)

Ex‐ante risk (the "sexy" dimension)

Risk efficiency ratio

Performance efficiency

Ex‐ante risk standards

Consistency in calculations and comparison

Disclosure

Recognition of adherence to best practice

More robust internal process and control

Chapter 17 Which Risk Measure to Use?

Why measure ex‐post risk?

Which risk measures to use?

Hedge funds

Smoothing

Outliers

Data mining

Risk measures and the Global Investment Performance Standards (GIPS®)

Fund rating systems.

Which measures are actually used?

Which risk measures should really be used?

Common errors to avoid

Chapter 18 Risk Control

Regulations in the investment risk area

Risk control structure

Risk management

Glossary of Key Terms

Appendix A Composite Internal Risk Measures

Bibliography

Index

EULA.

Notes:

Description based on print version record.

Includes bibliographical references and index.

ISBN:

9781119838876

1119838878

9781119838883

1119838886

9781119838869

111983886X

OCLC:

1281722845