Factor-Based Return Attribution Factors refer to a driver of returns. There are myriad of investment factors in existence and many models with which to capture them and use them to decompose returns. The curriculum reviews the Carhart 4-Factor Model. This…

Simple Attribution Return attribution approaches are a way to break down the returns of a portfolio and determine where they came from. They can be highly informative for all stakeholders from portfolio managers to clients. The simplest form of return…

Performance attribution may be either returns-based, holdings-based, or transactions based. The decision to use one set of inputs rather than another depends on the availability of data as well as the investment process being measured. Returns-based Attribution In returns-based attribution,…

Performance attribution includes both the return attribution and the risk attribution, not just that of the performance. Return attribution analyzes the impact of active investment decisions on returns, not passive returns. Risk attribution analyzes the risk consequences of those active…

Numerous stakeholders are interested in the results of the performance attribution process. Virtually any individual or entity that is affected by the outcomes of the portfolio should want to know how the return (or loss) was achieved. What specific decision…

Performance evaluation includes three components, each relating to a specific question about a portfolio's performance: Performance measurement: Quantifies performance. Performance attribution: Demonstrates performance method. Performance appraisal: Distinguishes skill from luck. While each factor above stands on its own, there is…

Several markets use real-time surveillance to detect market malpractices and give quick remedies. The market malpractices that can be detected by real-time monitoring are: Front running: This is also known as forward trading. It is a situation where a trader…

The risks associated with automated trading are: High-frequency traders’ arms race: The competition among the high-frequency traders has made trading increasingly expensive. Therefore, several HFTs quit the market when they cannot compete effectively. Systemic risks: A systemic risk is the…

Latency is the delay between the occurrence of an event and a subsequent event. It can also be defined as any delay in time between a request and a response. Advantages of Low-latency Traders Adequate productivity: When there is a…

Features of Electronic Trading Systems The mushrooming of electronic trading systems has forced buy-side traders, proprietary traders, and brokers to adopt the usage of new electronic trading tools. We discuss a few of the features of electronic trading in this…