Performance Evaluation and Attribution of Security Portfolios
1st Edition
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Description
Just how successful is that investment? Measuring portfolio performance requires evaluation (measuring portfolio results against benchmarks) and attribution (determining individual results of the portfolio's parts), In this book, a professor and an asset manager show readers how to use theories, applications, and real data to understand these tools. Unlike others, Fischer and Wermers teach readers how to pick the theories and applications that fit their specific needs. With material inspired by the recent financial crisis, Fischer and Wermers bring new clarity to defining investment success.
Key Features
- Gives readers the theories and the empirical tools to handle their own data
- Features practice problems formerly from the CFA Program curriculum.
Readership
Financial economics MA, MBA, and Ph.D. students studying asset pricing, portfolio management, financial management, and risk management.
Table of Contents
Introduction to the Series
Preface
Section 1: Performance Evaluation
Chapter 1. An Introduction to Asset Pricing Models
1.1 Historical Asset Pricing Models
1.2 The Beginning of Modern Asset Pricing Models
1.3 Efficient Markets
1.4 Studies That Attack the CAPM
1.5 Does proving the CAPM wrong = Market inefficiency? Or, do efficient markets = the CAPM is correct?
1.6 Small Capitalization and Value Stocks
1.7 The Asset Pricing Models of Today
1.8 Chapter-End Problems
References
Chapter 2. Returns-Based Performance Evaluation Models
2.1 Introduction
2.2 Goals, Guidelines, and Perils of Performance Evaluation
2.3 Returns-Based Analysis
2.4 Chapter-End Problems
References
Chapter 3. Returns-Based Performance Measures
3.1 Introduction
3.2 Luck vs. Skill
3.3 The Ultimate Goal of Performance Measures
3.4 Two Non-Regression Approaches
3.5 Regression-Based Performance Measures
3.6 Chapter-End Problems
References
Chapter 4. Portfolio-Holdings Based Performance Evaluation
4.1 Introduction
4.2 Unconditional Holdings-Based Performance Measurement
4.3 Conditional Holdings-Based Performance Measurement
4.4 Chapter-End Problems
References
Chapter 5. Combining Portfolio-Holdings-Based and Returns-Based Performance Evaluation (and the “Return Gap”)
5.1 Introduction
5.2 Performance-Decomposition Methodology
5.3 Application to U.S. Domestic Equity Mutual Funds
5.4 Empirical Results for U.S. Domestic Equity Mutual Funds
5.5 Results for U.S. Domestic Corporate BOND Mutual Funds
5.6 Appendix A
5.7 Appendix B
5.8 Chapter-End Problems
References
Chapter 6. Performance Evaluation of Non-Normal Portfolios
6.1 Introduction
6.2 Bootstrap Evaluation of Fund Alphas
6.3 Data
6.4 Results for U.S. Equity Funds
6.5 Sensitivity Analysis
6.6 Performance Persistence
6.7 Chapter-End Problems
References
Chapter 7. Fund Manager Selection Using Macroeconomic Information
7.1 Introduction
7.2 A Dynamic Model of Managed Fund Returns
7.3 Empirical Example: U.S. Domestic Equity Fund Data
7.4 Empirical Example: Results for U.S. Domestic Equity Funds
7.5 Chapter-End Problems
Appendix A Description of Mutual Fund Database
Appendix B Investments when fund risk loadings and benchmark returns may be predictable
Appendix C Investments when skills may be predictable
References
Chapter 8. Multiple Fund Performance Evaluation: The False Discovery Rate Approach
8.1 Introduction
8.2 The Impact of Luck on Managed Fund Performance
8.3 An Empirical Example: U.S. Domestic Equity Mutual Funds
8.4 An Empirical Example: Results for U.S. Domestic Equity Funds
References
Chapter 9. Active Management in Mostly Efficient Markets: A Survey of the Academic Literature
9.1 Introduction
9.2 Some Caveats
9.3 Does Active Management Add Value?
9.4 Active Management and “Mostly Efficient Markets”
9.5 Identifying Superior Active Managers (‘SAM’s)
9.6 Conclusions
9.7 Chapter-End Problems
References
Section 2: Performance Analysis and Reporting
Chapter 10. Basic Performance Evaluation Models
10.1 Basis Formula for the Calculation of Returns
10.2 Geometric Linkage and Scaling of Returns
10.3 Internal Rate of Return
10.4 Time-Weighted Return
10.5 Comparison Between the Time-Weighted Return and the Internal Rate of Return
10.6 Approximation Methods for the Computation of the Time-Weighted Return
10.7 Active Return
10.8 Continuously Compounded Returns
Appendix A Equality between the Time-Weighted Return and the Internal Rate of Return
Appendix B Solving Polynomial Equations for the Determination of Internal Rate of Return
Appendix C Time-Weighted Return and the Unit Price Method
Chapter 11. Indices and the Construction of Benchmarks
11.1 Basic Concepts
11.2 Equity Indices
11.3 Bond Indices
11.4 Money Market Indices
11.5 Peer Group Comparisons and Fund Universes
11.6 Benchmarks for Portfolios Investing in Multiple Asset Classes
11.7 Chapter-End Problems
Chapter 12. Attribution Analysis for Equity Portfolios According to the Brinson Approach
12.1 Introduction to Attribution Analysis
12.2 Single-Period Attribution Analysis According to the Brinson Approach
12.3 Multi-period Attribution Analysis According to Brinson et al.
12.4 Attribution Analysis in a Geometric Form
12.5 Further Aspects of Attribution Analysis
Chapter 13. Attribution Analysis for Fixed Income Portfolios
Appendix: Duration Measures
13.5 Exercises for Chapter-End Problems
Chapter 14. Analysis of Multi-Asset Class Portfolios and Hedge Funds
14.1 Basic Considerations
14.2 Attribution Analysis on Two Levels
14.3 Attribution Analysis on Three Levels
14.4 Implementation in practice
14.5 Risk-Adjusted Attribution Analysis Based On the Systematic Risk
14.6 Risk-Adjusted Attribution Analysis Based on the Information Ratio
14.7 Special Aspects in the Analysis of Hedge Funds
14.8 Chapter-End Problems
Chapter 15. Attribution Analysis with Derivatives
15.1 Attribution Analysis with Derivative-Based Currency Management
15.2 Treatment of Futures and Forwards
15.3 Treatment of Options
15.4 Swaps
15.5 Chapter-End Problems
Chapter 16. Global Investment Performance Standards (GIPS)
16.1 Background
16.2 Definition of Firm
16.3 Creation of Composites
16.4 Determination of Composite Return
16.5 Further Disclosure Requirements for Composite Structure and Sample Presentations
16.6 Maintenance of Composites
16.7 Independent Verification of Compliance with the Standards
16.8 Measurement of the Homogeneity of the Investment Process
16.9 Presentation of Risks according to the GIPS
16.10 Chapter-End Problems
Index
Details
- No. of pages:
- 724
- Language:
- English
- Copyright:
- © Academic Press 2012
- Published:
- 31st December 2012
- Imprint:
- Academic Press
- Hardcover ISBN:
- 9780127444833
- eBook ISBN:
- 9780080926520
About the Author
Bernd Fischer
In 2009, Bernd Fischer was appointed to the position of Managing Director of IDS GmbH - Analysis and Reporting Services (a subsidiary of Allianz SE), one of the largest internationally operating providers of operational investment controlling services for institutional investors and asset managers. From 2000 to 2009, he was Global Head of Risk Controlling and Compliance in the central business segment Asset Management of Commerzbank AG and was also responsible for the operational Risk and Performance Controlling division of cominvest GmbH. Prior to this, he worked in the fields of Portfolio Analysis and Risk Controlling in the Asset Management division of Dresdner Bank. From 2000 to 2004, he was a member of the Investment Council of the CFA Institute. Dr. Fischer completed his degrees in Physics and Mathematics at the University of Cologne and was awarded his doctorate at the Florida Atlantic University (USA) in 1995.
Affiliations and Expertise
Managing Director of IDS GmbH - Analysis and Reporting Services (a subsidiary of Allianz SE)
Russ Wermers
Russ Wermers is an Associate Professor of Finance at the Smith School of Business, University of Maryland at College Park, where he won a campus-wide teaching award during 2005. His main research interests include studies of the efficiency of securities markets, as well as the role of institutional investors in setting stock prices. Most notably, his past research has developed new approaches to measuring and attributing the performance of mutual funds, pension funds, and hedge funds, as well as devising winning strategies for investing in these funds. Professor Wermers received his Ph.D. from the University of California, Los Angeles, in 1995.
Affiliations and Expertise
Associate Professor of Finance, Smith School of Business, University of Maryland, USA
Reviews
"In the current environment of dwindling excess returns (alpha), Bernd R. Fischer and Russ Wermers give readers the necessary tools to tackle and overcome the challenges of adding value through the efforts of active managers. This well-detailed volume establishes an excellent framework for manager evaluation and selection by delving into portfolios and analyzing them with meticulous methodologies. At the same time, the authors highlight pitfalls and traps to avoid....In summary, Fischer and Wermers evaluate several methodologies and studies and provide appropriate criticisms. They use real-life examples in their analyses of the practicality of the various approaches. The exhaustiveness of their efforts makes this volume a comprehensive one-stop shop for fund manager evaluation and portfolio analytics. Highly recommended for professionals who evaluate portfolio managers (e.g., wealth managers, advisers, fund allocators), Performance Evaluation and Attribution of Security Portfolios blends traditional concepts of portfolio evaluation with the latest academic findings. Unlike books that are either concerned exclusively with nuts-and-bolts issues or unduly theoretical, it provides an optimal balance for the benefit of both practitioners and academicians." -- Kishor Bagri, CFA, The CFA Institute Enterprising Investor blog
"Performance Evaluation and Attribution of Security Portfolios is compulsory reading for anyone who has professional responsibilities that involves performance measurement. Fortunately for these readers the authors are writers with gifts rarely found in textbooks." --Jack L. Treynor, President of Treynor Capital Management
"This excellent book covers everything a practitioner needs to know to construct a comprehensive system for analyzing investment performance." -- Journal of Investment Management, Fourth Quarter 2014
"…the new book…is the first one to present the actual status in theory and practice comprehensively and to combine the views of an academic…and a practitioner…this is a unique book and a must have for everybody seriously interested in these subject areas."--The Journal of Performance Management, Fall 2013
"The authors provide an excellent comprehensive treatment, running from widely used traditional measures all the way to methods pushing the knowledge frontier, complemented with practical information such as global reporting standards. As such, this book is a valuable resource for anyone facing the important challenge of evaluating the performance of investment managers."--Robert F. Stambaugh, The Wharton School of the University of Pennsylvania
"Wermers and Fischer provide a timely review of a rapidly developing subject, pitched at roughly the advanced MBA level. It is particularly strong and useful in its coverage of holdings-based performance measurement. This is where the field is going, making the book a must-read."--Wayne Ferson, University of Southern California
"An excellent in-depth review of state-of-the-art approaches to performance evaluation and attribution. A worthwhile read for both academics and practitioners."--Lubos Pastor, University of Chicago