Risk attribution identifies the sources of risk in portfolios. For absolute mandates, it identifies the sources of portfolio volatility. For benchmark-relative mandates, it identifies the sources of tracking risk. (e.g., portfolio volatility or tracking risk). $$ \textbf{Type of Attribution Analysis}…

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…

All asset managers should have a trade policy document that clearly and comprehensively articulates the firm's trading policies and escalation procedures. The curriculum can be quite wordy in this section. The heart of the message is simply this: “Firms need…

Trade execution, a quantitative process assesses the performance of traders, algorithms, and brokers. Trade cost assessment, known as Trade Cost Analysis (TCA) or post-trade analysis, aids portfolio managers in selecting optimal trading methods and identifying and rectifying process issues. This…

Trade Cost Measurement In its simplest terms, trade cost would just represent the commission paid to place a trade. However, this view is simplistic in that it only represents a portion of the total costs. The vocabulary from Reading 11,…