Practical Portfolio Performance Measurement and Attribution -- Contents -- Acknowledgements -- 1 Introduction -- Why measure portfolio performance? -- The performance measurement process -- The purpose of this book -- Role of performance measurers -- Book structure -- 2 The Mathematics of Portfolio Return -- Simple return -- Money-weighted returns -- Internal rate of return (IRR) -- Simple internal rate of return -- Modified internal rate of return -- Simple Dietz -- ICAA method -- Modified Dietz -- Time-weighted returns -- True time-weighted -- Unit price method -- Time-weighted versus money-weighted rates of return -- Approximations to the time-weighted return -- Index substitution -- Regression method (or method) -- Analyst's test -- Hybrid methodologies -- Linked modified Dietz -- BAI method (or linked IRR) -- Which method to use? -- Self-selection -- Annualised returns -- Return hiatus -- Continuously compounded returns -- Gross- and net-of-fee calculations -- Estimating gross- and net-of-fee returns -- Initial fees -- Portfolio component returns -- Component weight -- Short positions -- Overlay strategies -- Carve-outs -- Multi-period component returns -- Base currency and local returns -- 3 Benchmarks -- Benchmarks -- Benchmark attributes -- Commercial indexes -- Calculation methodologies -- Aggregate price index (price-weighted index) -- Geometric (or Jevons-type) index -- Market capitalisation index -- Laspeyres index -- Paasche index -- Marshall-edgeworth index -- Fisher index -- Equal-weighted indexes -- Fundamental indexes -- Currency effects in benchmark -- Hedged indexes -- Customised (or composite) indexes -- Fixed weight and dynamised benchmarks -- Capped indexes -- Blended (or spliced) indexes -- Money-weighted benchmarks -- 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 -- Peer groups and universes -- Percentile rank -- Random portfolios -- Notional funds -- Normal portfolio -- Growth and value -- Excess return -- Arithmetic excess return -- Geometric excess return -- Performance fees -- Symmetrical performance fees (or fulcrum fees) -- Asymmetrical performance fees -- Performance fee structures -- Sliding scale -- Performance fee caps -- Hurdle rate -- Crystallisation -- High water mark -- Equalisation -- 4 Risk -- Definition of risk -- Risk management versus risk control -- Risk aversion -- Risk measures -- Ex post and ex ante -- Variability -- Mean absolute deviation -- Variance -- Standard deviation -- Frequency and number of data points -- Sharpe ratio (reward to variability) -- Risk-adjusted return: M 2 -- M 2 excess return -- Differential return -- GH1 (Graham and Harvey 1) -- GH2 (Graham and Harvey 2) -- Regression analysis -- Regression equation -- Regression alpha (R) -- Regression beta (R) -- Regression epsilon (R) -- Capital asset pricing model (CAPM) -- Beta () (systematic risk or volatility) -- Jensen's alpha (or Jensen's measure or Jensen's differential return or ex post alpha) -- Bull beta (+) -- Bear beta () -- Beta timing ratio -- Covariance -- Correlation () -- Correlation and risk-adjusted return: M 3 -- R 2 (or coefficient of determination) -- Systematic risk -- Specific or residual risk -- Treynor ratio (reward to volatility) -- Modified Treynor ratio -- Appraisal ratio (or Treynor-Black ratio) -- Modified Jensen -- Fama decomposition -- Selectivity -- Diversification -- Net selectivity -- Relative risk -- Tracking error -- Information ratio -- Return distributions -- Normal (or Gaussian) distribution -- The central limit theorem -- Skewness (Fisher's or moment skewness).

Sample skewness -- Kurtosis (Pearson's kurtosis) -- Sample kurtosis -- Bera-Jarque statistic -- Risk-adjusted performance measures for hedge funds -- Drawdown -- Average drawdown -- Maximum drawdown -- Largest individual drawdown -- Recovery time (or drawdown duration) -- Drawdown deviation -- Ulcer index -- Pain index -- Calmar ratio -- Sterling ratio -- Sterling-Calmar ratio -- Burke ratio -- Modified Burke ratio -- Martin ratio (or ulcer performance index) -- Pain ratio -- Lake ratio -- Peak ratio -- Downside risk (or semi-standard deviation) -- Upside risk -- Shortfall risk (or downside frequency) -- Omega ratio () -- Bernardo and Ledoit (or gain-loss) ratio -- d ratio -- Omega-Sharpe ratio -- Sortino ratio -- Kappa (l ) -- Upside potential ratio -- Volatility skewness -- Variability skewness -- Adjusted Sharpe ratio -- Skewness-kurtosis ratio -- Prospect ratio -- Value at risk (VaR) -- Variance-covariance (or parametric) -- Historical simulation (or non-parametric) -- Monte Carlo simulation -- VaR ratio -- Reward to VaR ratio -- Conditional VaR (or expected shortfall) -- Conditional Sharpe ratio -- Modified VaR -- Modified Sharpe ratio -- Return adjusted for downside risk -- M 2 for Sortino -- Omega excess return -- Hurst index -- Fixed Income Risk -- Duration (or volatility) -- Macaulay duration -- Modified duration -- Macaulay-Weil duration -- Portfolio duration -- Effective duration (or option-adjusted duration) -- Duration to worst -- Convexity -- Modified convexity -- Effective convexity -- Duration beta -- Reward to duration -- Which risk measures to use? -- Risk efficiency ratio -- Fund rating systems -- Risk control structure -- 5 Performance Attribution -- Arithmetic attribution -- Brinson, Hood and Beebower -- Asset allocation -- Security (or stock) selection -- Interaction -- Brinson and Fachler -- Interaction.

Geometric excess return attribution -- Asset allocation -- Stock selection -- Sector weights -- 6 Multi-currency Attribution -- Ankrim and Hensel -- Karnosky and Singer -- Geometric multi-currency attribution -- Naı̈ve currency attribution -- Compounding effects -- Geometric currency allocation -- Currency timing -- Interest rate differentials -- Revised currency allocation -- Revised country allocation -- Incorporating forward currency contracts -- Other currency issues -- 7 Fixed Income Attribution -- The yield curve -- Yield to maturity (or gross redemption yield) -- Coupon yield curve -- Par yield curve -- Zero-coupon (or spot) curve -- Wagner and Tito -- Weighted duration attribution -- Geometric fixed income attribution -- Campisi framework -- Yield curve analysis -- Shift -- Twist (or slope) -- Curvature (or butterfly) -- Carry -- Credit (or spread) -- Yield curve decomposition -- 8 Multi-period Attribution -- Smoothing algorithms -- Carino -- Menchero -- GRAP method -- Frongello -- Davies and Laker -- Multi-period geometric attribution -- Annualisation of excess return -- Attribution annualisation -- 9 Further Attribution Issues -- Attribution variations -- Contribution analysis (or absolute return attribution) -- Return (or regression)-based attribution -- Holding-based (or buy/hold) attribution -- Transaction-based attribution -- Security-level attribution -- Transaction costs -- Off-benchmark (or zero-weight sector) attribution -- Multi-level attribution -- Balanced attribution -- Lookthrough attribution (or fund of funds attribution) -- Attribution standards -- Evolution of performance attribution methodologies -- Risk-adjusted attribution -- Selectivity -- 10 Performance Measurement for Derivatives -- Futures -- Equity index future -- Libor (London interbank offered rate) -- Attribution including equity index futures.

Leverage (or gearing) -- Forward foreign exchange (FFX) contract (or currency forward) -- Swaps -- Interest rate swaps -- Total return swap -- Credit default swap -- Equity index swaps -- Contracts for difference (CFD) -- Options -- Option price sensitivity (the Greeks) -- Warrants -- Convertible bonds -- Attribution analysis using options, warrants and convertible bonds -- Market neutral attribution -- Attribution for 130/30 funds (or extended short funds) -- 11 Performance Presentation Standards -- Why do we need performance presentation standards? -- Global Investment Performance Standards (GIPS ) -- Advantages for asset managers -- The standards -- Composites -- Presentation -- Calculation -- Claim of compliance -- Structure of the standards -- Verification -- Verification/practitioners subcommittee -- Interpretations subcommittee -- Guidance statements -- Definition of firm -- Carve-outs -- Significant cash flows -- Portability -- Supplemental information -- Error correction -- Measures of dispersion -- Equal-weighted standard deviation -- Asset-weighted dispersion -- High-low -- Interquartile range -- Achieving compliance -- Maintaining compliance -- Appendix A Simple Attribution -- Appendix B Multi-currency Attribution Methodology -- Appendix C EIPC Guidance for Users of Attribution Analysis -- Appendix D European Investment Performance Committee - Guidance on Performance Attribution Presentation -- Appendix E The Global Investment Performance Standards -- Appendix F Guidance Statement on Composite Definition -- Appendix G Sample Global Investment Performance Standards Presentation -- Appendix H Calculation Methodology Guidance Statement -- Appendix I Definition of Firm Guidance Statements -- Appendix J Treatment of Carve-outs Guidance Statement -- Appendix K Significant Cash Flow Guidance Statement.

Appendix L Guidance Statement on Performance Record Portability.