Mastering Attribution in Finance

<p>About the author </p> <p>Acknowledgements</p> <p>Preface </p> <p><strong>1 An introduction to attribution </strong></p> <p>1.1 Securities, portfolios and risk</p> <p>1.2 Types of risk</p> <p>1.3 Return and attribution</p> <p>1.4 Strategy tagging</p> <p>1.5 Types of attribution</p> <p>1.6 Book structure</p> <p><strong>PART 1 Equity attribution </strong></p> <p><strong>2 The basics of performance measurement</strong></p> <p>2.1 Introduction</p> <p>2.2 Defining return</p> <p>2.3 Compounded returns</p> <p>2.4 Time-weighted and money-weighted returns</p> <p>2.5 Portfolio returns</p> <p>2.6 Transactions and cash flow</p> <p>2.7 Sector returns</p> <p>2.8 Calculating portfolio returns over successive intervals</p> <p>2.9 Futures cash offsets</p> <p>2.10 Edge cases</p> <p>2.11 External returns</p> <p>2.12 Benchmarks</p> <p>2.13 Active return</p> <p>2.14 Stochastic attribution</p> <p>2.15 Liability-driven investment (LDI)</p> <p><strong>3 Equity attribution </strong></p> <p>3.1 Introduction</p> <p>3.2 Brinson attribution</p> <p>3.3 Single level Brinson attribution</p> <p>3.4 Multiple-level asset allocation</p> <p>3.5 Off-benchmark securities</p> <p>3.6 Successive portfolio attribution</p> <p>3.7 Security-level attribution</p> <p><strong>4 Currency attribution </strong></p> <p>4.1 Introduction</p> <p>4.2 Currency attribution returns</p> <p>4.3 Performance and attribution on unhedged portfolios</p> <p>4.4 Attribution on an unhedged portfolio</p> <p>4.5 Portfolio hedging</p> <p>4.6 Currency forwards</p> <p>4.7 Hedging and risk</p> <p>4.8 Naïve attribution on a hedged portfolio</p> <p>4.9 Measuring hedge returns</p> <p>4.10 Brinson attribution on a hedged portfolio</p> <p>4.11 Problems with the Brinson approach when hedging is active</p> <p>4.12 Calculating base and return premiums</p> <p>4.13 The Karnosky-Singer attribution model</p> <p>4.14 Running Karnosky-Singer attribution on an unhedged portfolio</p> <p><strong>5 Smoothing algorithms </strong></p> <p>5.1 Why returns do not combine neatly over time</p> <p>5.2 The importance of internally consistent return contributions</p> <p>5.3 Path-independence</p> <p>5.4 Carino smoothing</p> <p>5.5 Geometric smoothing</p> <p>5.6 Foreign exchange return and smoothing</p> <p>5.7 Summary</p> <p><strong>PART 2 Fixed income attribution </strong></p> <p><strong>6 An overview of fixed income risks </strong></p> <p>6.1 Introduction</p> <p>6.2 What is a bond?</p> <p>6.3 Pricing conventions</p> <p>6.4 Maturity</p> <p>6.5 Coupons</p> <p>6.6 Discounted cash flows and net present value</p> <p>6.7 Pricing a bond from its discounted cash flows</p> <p>6.8 Bond yield and carry return</p> <p>6.9 Prices and yields</p> <p>6.10 Return of a bond</p> <p>6.11 Credit effects</p> <p>6.12 The three Cs</p> <p><strong>7 Yield curves in attribution </strong></p> <p>7.1 Introduction</p> <p>7.2 Why interest rates vary by term</p> <p>7.3 Interpolation</p> <p>7.4 Par curves and zero curves</p> <p>7.5 Credit spreads</p> <p><strong>8 Pricing, risk and the attribution equation </strong></p> <p>8.1 Introduction</p> <p>8.2 Pricing securities from first principles</p> <p>8.3 Calculating return using the perturbational equation</p> <p>8.4 Residuals</p> <p>8.5 Stand-alone portfolios</p> <p><strong>PART 3 Sources of fixed income return </strong></p> <p><strong>9 Carry return</strong></p> <p>9.1 Introduction</p> <p>9.2 Carry-based investment strategies</p> <p>9.3 Types of yield</p> <p>9.4 Calculating carry return</p> <p>9.5 Pros and cons of YTM</p> <p>9.6 Decomposing carry</p> <p>9.7 Which yield to use?</p> <p>9.8 Decomposing carry return</p> <p>9.9 Yield for non-bond securities</p> <p>9.10 Using yield to maturity in attribution reports</p> <p><strong>10 Sovereign curve attribution </strong></p> <p>10.1 Introduction</p> <p>10.2 Yield curve models</p> <p>10.3 Parallel shift and modified duration, and why they matter</p> <p>10.4 Measuring twist</p> <p>10.5 Taxonomy of curve shifts</p> <p>10.6 Sources of yield curve data&lt;</p>