Mastering Attribution in Finance: A practitioner's guide to risk-based analysis of investment returns (Financial Times Series)

313 Pages·2015·4.845 MB·English

by  Andrew Colin

PRAISE FOR MASTERING ATTRIBUTION IN FINANCE
‘There are only a few individuals with the requisite qualifications to under-
take the task of writing a book on performance attribution, and Andrew
Colin clearly ranks among them. His expertise and experience as a devel-
oper, designer, and lecturer provide him with the necessary credentials.
The result is a book that masterfully covers all aspects of the subject, both
broadly and deeply. This book deserves to rest upon the shelves of any
performance measurement or investment professional eager to learn and
understand more about this subject.’
David Spaulding, DPS, CIPM
CEO, The Spaulding Group
‘An excellent step forward in the explanation of the dark art of fixed income
attribution! The material is methodical and strikes an appropriate balance
between academic theory and practical implementation.’
Carl Bacon CIPM
Chairman, StatPro Group
‘Yet again, Andrew Colin produces 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
A01_COLI4026_01_SE_FM.indd 1 11/23/15 9:55 AM
This page intentionally left blank
A01_COLI4026_01_SE_FM.indd 2 11/23/15 9:55 AM
Mastering Attribution
in Finance
A01_COLI4026_01_SE_FM.indd 3 11/23/15 9:55 AM
A01_COLI4026_01_SE_FM.indd 4 11/23/15 9:55 AM
Mastering Attribution
in Finance
A practitioner’s guide to risk-based
analysis of investment returns
Andrew Colin
A01_COLI4026_01_SE_FM.indd 5 11/23/15 9:55 AM
PEARSON EDUCATION LIMITED
Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: [phone]
Web: www.pearson.com/uk
First published 2016 (print and electronic)
© Andrew Colin 2016 (print and electronic)
The right of Andrew Colin to be identified as author of this work has been asserted by him in accordance
with the Copyright, Designs and Patents Act 1988.
Pearson Education is not responsible for the content of third-party internet sites.
ISBN: 978-1-292-11402-6 (print)
978-1-292-11404-0 (PDF)
978-1-292-11405-7 (ePub)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Colin, Andrew, author.
Title: Mastering attribution in finance: a practitioner’s guide to risk-based analysis of investment
returns / Andrew Colin.
Description: Harlow, England: Pearson Education, 2016. | Includes bibliographical references and index.
Identifiers: LCCN 2015038612 | ISBN 9781292114026
Subjects: LCSH: Portfolio management. | Rate of return—Mathematical models. | Investments. |
Fixed-income securities. | Technical analysis (Investment analysis)
Classification: LCC HG4529.5 .C65 2016 | DDC 332.6--dc23
LC record available at http://lccn.loc.gov/2015038612
The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval
system, distribution or transmission in any form or by any means, electronic, mechanical, recording or
otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting
restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd,
Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN.
The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed,
leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the
publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted
by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement
of the author’s and the publisher’s rights and those responsible may be liable in law accordingly.
All trademarks used herein are the property of their respective owners. The use of any trademark in this
text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does
the use of such trademarks imply any affiliation with or endorsement of this book by such owners.
10 9 8 7 6 5 4 3 2 1
19 18 17 16 15
Print edition typeset in 11.5pt Garamond 3 LT Pro by Lumina Datamatics
Print edition printed by Ashford Colour Press Ltd, Gosport
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
A01_COLI4026_01_SE_FM.indd 6 11/23/15 9:55 AM
For Linda, Thomas and Rachel
A01_COLI4026_01_SE_FM.indd 7 11/23/15 9:55 AM
This page intentionally left blank
A01_COLI4026_01_SE_FM.indd 8 11/23/15 9:55 AM
Contents
About the author xvi
Acknowledgements xvii
Preface xix
1 An introduction to attribution 1
1.1 Securities, portfolios and risk 3
1.2 Types of risk 3
1.3 Return and attribution 4
1.4 Strategy tagging 5
1.5 Types of attribution 5
1.6 Book structure 6
Part 1 EquIty AttRIbutIOn 9
2 the basics of performance measurement 11
2.1 Introduction 13
2.2 Defining return 13
2.3 Compounded returns 14
2.4 Time-weighted and money-weighted returns 15
2.5 Portfolio returns 17
2.6 Transactions and cash flows 17
2.7 Sector returns 19
2.8 Calculating portfolio returns over successive intervals 20
2.9 Futures cash offsets 20
2.10 Edge cases 22
2.11 External returns 22
2.12 Benchmarks 24
2.13 Active return 25
2.14 Stochastic attribution 25
2.15 Liability-driven investment (LDI) 26
ix
A01_COLI4026_01_SE_FM.indd 9 11/23/15 9:55 AM