Mastering Attribution in Finance

Description

Mastering Attribution in Finance is a comprehensive guide to how attribution is used in equity and fixed income markets.

Attribution in finance is a key investment and asset management process used in managed funds. A managed fund uses appropriate financial tools to make sure that the fund‘s value is maintained or increased. Attribution tools are used to analyse why a portfolio’s performance differs from a benchmark. The difference between the portfolio return and the benchmark return is known as the active return.

As with all Mastering titles, this book is written by an expert in the field. It will show you how to:

• Understand how attribution is used in equity and fixed income markets
• Improve your knowledge of the mathematics used in performance and attribution
• Assess in greater detail the effects top-down attribution and attribution on specific types of fixed income security
• Broaden your awareness of performance and return

‘… a book that brings together the details of attribution, blending both detailed theoretical concepts and practical examples. A must have for any attribution specialist.’

Andrew Kophamel CFA, CIPM, FRM

Head of Performance, Asia Pacific, Aberdeen Asset Management

 

Attribution in finance is a key investment and asset management process used in managed funds. It measures which investment decisions about the portfolio’s underlying risks worked and which did not, therefore allowing the fund manager to take remedial action if necessary. Attribution is critical business intelligence for anyone involved in selecting, managing or marketing investments.

 

Mastering Attribution in Finance:

 

·    Presents the key concepts behind portfolio returns for equities and fixed income

·    Explains the sources of risk that drive fixed income security returns

·    Describes the practical aspects of attribution and the tools used in attribution reporting

·    Introduces important approaches such as Brinson attribution, the Campisi model, duration attribution, the Tim Lord model, the Karnosky-Singer attribution model, and parametric and non-parametric yield curve attribution

About the author

Acknowledgements

Preface

1 An introduction to attribution

1.1 Securities, portfolios and risk

1.2 Types of risk

1.3 Return and attribution

1.4 Strategy tagging

1.5 Types of attribution

1.6 Book structure

PART 1 Equity attribution

2 The basics of performance measurement

2.1 Introduction

2.2 Defining return

2.3 Compounded returns

2.4 Time-weighted and money-weighted returns

2.5 Portfolio returns

2.6 Transactions and cash flow

2.7 Sector returns

2.8 Calculating portfolio returns over successive intervals

2.9 Futures cash offsets

2.10 Edge cases

2.11 External returns

2.12 Benchmarks

2.13 Active return

2.14 Stochastic attribution

2.15 Liability-driven investment (LDI)

3 Equity attribution

3.1 Introduction

3.2 Brinson attribution

3.3 Single level Brinson attribution

3.4 Multiple-level asset allocation

3.5 Off-benchmark securities

3.6 Successive portfolio attribution

3.7 Security-level attribution

4 Currency attribution

4.1 Introduction

4.2 Currency attribution returns

4.3 Performance and attribution on unhedged portfolios

4.4 Attribution on an unhedged portfolio

4.5 Portfolio hedging

4.6 Currency forwards

4.7 Hedging and risk

4.8 Naïve attribution on a hedged portfolio

4.9 Measuring hedge returns

4.10 Brinson attribution on a hedged portfolio

4.11 Problems with the Brinson approach when hedging is active

4.12 Calculating base and return premiums

4.13 The Karnosky-Singer attribution model

4.14 Running Karnosky-Singer attribution on an unhedged portfolio

5 Smoothing algorithms

5.1 Why returns do not combine neatly over time

5.2 The importance of internally consistent return contributions

5.3 Path-independence

5.4 Carino smoothing

5.5 Geometric smoothing

5.6 Foreign exchange return and smoothing

5.7 Summary

PART 2 Fixed income attribution

6 An overview of fixed income risks

6.1 Introduction

6.2 What is a bond?

6.3 Pricing conventions

6.4 Maturity

6.5 Coupons

6.6 Discounted cash flows and net present value

6.7 Pricing a bond from its discounted cash flows

6.8 Bond yield and carry return

6.9 Prices and yields

6.10 Return of a bond

6.11 Credit effects

6.12 The three Cs

7 Yield curves in attribution

7.1 Introduction

7.2 Why interest rates vary by term

7.3 Interpolation

7.4 Par curves and zero curves

7.5 Credit spreads

8 Pricing, risk and the attribution equation

8.1 Introduction

8.2 Pricing securities from first principles

8.3 Calculating return using the perturbational equation

8.4 Residuals

8.5 Stand-alone portfolios

PART 3 Sources of fixed income return

9 Carry return

9.1 Introduction

9.2 Carry-based investment strategies

9.3 Types of yield

9.4 Calculating carry return

9.5 Pros and cons of YTM

9.6 Decomposing carry

9.7 Which yield to use?

9.8 Decomposing carry return

9.9 Yield for non-bond securities

9.10 Using yield to maturity in attribution reports

10 Sovereign curve attribution

10.1 Introduction

10.2 Yield curve models

10.3 Parallel shift and modified duration, and why they matter

10.4 Measuring twist

10.5 Taxonomy of curve shifts

10.6 Sources of yield curve data<

Mastering Attribution in Finance is a comprehensive guide to how attribution is used in equity and fixed income markets.

 

As with all Mastering titles, this book is written by an expert in the field. The book:

• Presents a structure overview of attribution in finance
• Provides a complete mathematical toolkit, including all the necessary formulae
• Covers all the key models, such as The Campisi model, Duration attribution, the Tim Lord model, key rate attribution, top-down attribution, Karnosky-Singer attribution model, Parametric and non-parametric yield curve models, Brinson attribution
• Includes tricks and techniques for trading specific types of fixed income security

Andrew Colin is a leading authority in the field of investment performance attribution. He’s worked at Citigroup, the Commonwealth Bank, Zurich Investment Management, JP Morgan, StatPro and Queensland University of Technology. He’s also managed many consulting projects in defence and applied statistics.

Additional information

Dimensions	0.80 × 6.60 × 9.40 in
Series	Financial Times Series
Imprint	FT Publishing International
Format	gen
ISBN-13	09781292114026
ISBN-10	1292114029
Author	Andrew Colin
BISAC	BUS069020, BUS036000
Subjects	BUS069020, higher education, BUS036000, Vocational / Professional Studies, General Vocational / Professional