Performance Evaluation and Attribution of Security Portfolios

Performance Evaluation and Attribution of Security Portfolios, 1st Edition

Performance Evaluation and Attribution of Security Portfolios, 1st Edition,Bernd Fischer,Russ Wermers,ISBN9780127444833


Academic Press




240 X 197

    Gives readers the theories and the empirical tools to handle their own data
    Chapter-end problems build understanding
    Filled with examples that size-up real asset managers
    Features practice problems formerly from the CFA Program curriculum.

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    Key Features

    • Gives readers the theories and the empirical tools to handle their own data
    • Features practice problems formerly from the CFA Program curriculum.


    Just how successful is that investment?  Measuring portfolio performance requires evaluation (measuring portfolio results against benchmarks) and attribution (determining individual results of the portfolio's parts),   In this book, a professor and an asset manager show readers how to use theories, applications, and real data to understand these tools. Unlike others, Fischer and Wermers teach readers how to pick the theories and applications that fit their specific needs.  With material inspired by the recent financial crisis, Fischer and Wermers bring new clarity to defining investment success. 


    Financial economics MA, MBA, and Ph.D. students studying asset pricing, portfolio management, financial management, and risk management. 

    Bernd Fischer

    In 2009, Bernd Fischer was appointed to the position of Managing Director of IDS GmbH - Analysis and Reporting Services (a subsidary of Allianz SE), one of the largest internationally operating providers of operational investment controlling services for institutional investors and asset managers. From 2000 to 2009, he was Global Head of Risk Controlling and Compliance in the central business segment Asset Management of Commerzbank AG and was also responsible for the operational Risk and Performance Controlling division of cominvest GmbH. Prior to this, he worked in the fields of Portfolio Analysis and Risk Controlling in the Asset Management division of Dresdner Bank. From 2000 to 2004, he was a member of the Investment Council of the CFA Institute. Dr. Fischer completed his degrees in Physics and Mathematics at the University of Cologne and was awarded his doctorate at the Florida Atlantic University (USA) in 1995.

    Affiliations and Expertise

    Managing Director of IDS GmbH - Analysis and Reporting Services (a subsidiary of Allianz SE).

    Russ Wermers

    Russ Wermers is an Associate Professor of Finance at the Smith School of Business, University of Maryland at College Park, where he won a campus-wide teaching award during 2005. His main research interests include studies of the efficiency of securities markets, as well as the role of institutional investors in setting stock prices. Most notably, his past research has developed new approaches to measuring and attributing the performance of mutual funds, pension funds, and hedge funds, as well as devising winning strategies for investing in these funds. Professor Wermers received his Ph.D. from the University of California, Los Angeles, in 1995.

    Affiliations and Expertise

    University of Maryland

    Performance Evaluation and Attribution of Security Portfolios, 1st Edition

    Introduction to the Series


    Section 1: Performance Evaluation

    Chapter 1. An Introduction to Asset Pricing Models

    1.1 Historical Asset Pricing Models

    1.2 The Beginning of Modern Asset Pricing Models

    1.3 Efficient Markets

    1.4 Studies That Attack the CAPM

    1.5 Does proving the CAPM wrong = Market inefficiency? Or, do efficient markets = the CAPM is correct?

    1.6 Small Capitalization and Value Stocks

    1.7 The Asset Pricing Models of Today

    1.8 Chapter-End Problems


    Chapter 2. Returns-Based Performance Evaluation Models

    2.1 Introduction

    2.2 Goals, Guidelines, and Perils of Performance Evaluation

    2.3 Returns-Based Analysis

    2.4 Chapter-End Problems


    Chapter 3. Returns-Based Performance Measures

    3.1 Introduction

    3.2 Luck vs. Skill

    3.3 The Ultimate Goal of Performance Measures

    3.4 Two Non-Regression Approaches

    3.5 Regression-Based Performance Measures

    3.6 Chapter-End Problems


    Chapter 4. Portfolio-Holdings Based Performance Evaluation

    4.1 Introduction

    4.2 Unconditional Holdings-Based Performance Measurement

    4.3 Conditional Holdings-Based Performance Measurement

    4.4 Chapter-End Problems


    Chapter 5. Combining Portfolio-Holdings-Based and Returns-Based Performance Evaluation (and the “Return Gap”)

    5.1 Introduction

    5.2 Performance-Decomposition Methodology

    5.3 Application to U.S. Domestic Equity Mutual Funds

    5.4 Empirical Results for U.S. Domestic Equity Mutual Funds

    5.5 Results for U.S. Domestic Corporate BOND Mutual Funds

    5.6 Appendix A

    5.7 Appendix B

    5.8 Chapter-End Problems


    Chapter 6. Performance Evaluation of Non-Normal Portfolios

    6.1 Introduction

    6.2 Bootstrap Evaluation of Fund Alphas

    6.3 Data

    6.4 Results for U.S. Equity Funds

    6.5 Sensitivity Analysis

    6.6 Performance Persistence

    6.7 Chapter-End Problems


    Chapter 7. Fund Manager Selection Using Macroeconomic Information

    7.1 Introduction

    7.2 A Dynamic Model of Managed Fund Returns

    7.3 Empirical Example: U.S. Domestic Equity Fund Data

    7.4 Empirical Example: Results for U.S. Domestic Equity Funds

    7.5 Chapter-End Problems

    Appendix A Description of Mutual Fund Database

    Appendix B Investments when fund risk loadings and benchmark returns may be predictable

    Appendix C Investments when skills may be predictable


    Chapter 8. Multiple Fund Performance Evaluation: The False Discovery Rate Approach

    8.1 Introduction

    8.2 The Impact of Luck on Managed Fund Performance

    8.3 An Empirical Example: U.S. Domestic Equity Mutual Funds

    8.4 An Empirical Example: Results for U.S. Domestic Equity Funds


    Chapter 9. Active Management in Mostly Efficient Markets: A Survey of the Academic Literature

    9.1 Introduction

    9.2 Some Caveats

    9.3 Does Active Management Add Value?

    9.4 Active Management and “Mostly Efficient Markets”

    9.5 Identifying Superior Active Managers (‘SAM’s)

    9.6 Conclusions

    9.7 Chapter-End Problems


    Section 2: Performance Analysis and Reporting

    Chapter 10. Basic Performance Evaluation Models

    10.1 Basis Formula for the Calculation of Returns

    10.2 Geometric Linkage and Scaling of Returns

    10.3 Internal Rate of Return

    10.4 Time-Weighted Return

    10.5 Comparison Between the Time-Weighted Return and the Internal Rate of Return

    10.6 Approximation Methods for the Computation of the Time-Weighted Return

    10.7 Active Return

    10.8 Continuously Compounded Returns

    Appendix A Equality between the Time-Weighted Return and the Internal Rate of Return

    Appendix B Solving Polynomial Equations for the Determination of Internal Rate of Return

    Appendix C Time-Weighted Return and the Unit Price Method

    Chapter 11. Indices and the Construction of Benchmarks

    11.1 Basic Concepts

    11.2 Equity Indices

    11.3 Bond Indices

    11.4 Money Market Indices

    11.5 Peer Group Comparisons and Fund Universes

    11.6 Benchmarks for Portfolios Investing in Multiple Asset Classes

    11.7 Chapter-End Problems

    Chapter 12. Attribution Analysis for Equity Portfolios According to the Brinson Approach

    12.1 Introduction to Attribution Analysis

    12.2 Single-Period Attribution Analysis According to the Brinson Approach

    12.3 Multi-period Attribution Analysis According to Brinson et al.

    12.4 Attribution Analysis in a Geometric Form

    12.5 Further Aspects of Attribution Analysis

    Chapter 13. Attribution Analysis for Fixed Income Portfolios

    Appendix: Duration Measures

    13.5 Exercises for Chapter-End Problems

    Chapter 14. Analysis of Multi-Asset Class Portfolios and Hedge Funds

    14.1 Basic Considerations

    14.2 Attribution Analysis on Two Levels

    14.3 Attribution Analysis on Three Levels

    14.4 Implementation in practice

    14.5 Risk-Adjusted Attribution Analysis Based On the Systematic Risk

    14.6 Risk-Adjusted Attribution Analysis Based on the Information Ratio

    14.7 Special Aspects in the Analysis of Hedge Funds

    14.8 Chapter-End Problems

    Chapter 15. Attribution Analysis with Derivatives

    15.1 Attribution Analysis with Derivative-Based Currency Management

    15.2 Treatment of Futures and Forwards

    15.3 Treatment of Options

    15.4 Swaps

    15.5 Chapter-End Problems

    Chapter 16. Global Investment Performance Standards (GIPS)

    16.1 Background

    16.2 Definition of Firm

    16.3 Creation of Composites

    16.4 Determination of Composite Return

    16.5 Further Disclosure Requirements for Composite Structure and Sample Presentations

    16.6 Maintenance of Composites

    16.7 Independent Verification of Compliance with the Standards

    16.8 Measurement of the Homogeneity of the Investment Process

    16.9 Presentation of Risks according to the GIPS

    16.10 Chapter-End Problems


    Quotes and reviews

    "In the current environment of dwindling excess returns (alpha), Bernd R. Fischer and Russ Wermers give readers the necessary tools to tackle and overcome the challenges of adding value through the efforts of active managers. This well-detailed volume establishes an excellent framework for manager evaluation and selection by delving into portfolios and analyzing them with meticulous methodologies. At the same time, the authors highlight pitfalls and traps to avoid....In summary, Fischer and Wermers evaluate several methodologies and studies and provide appropriate criticisms. They use real-life examples in their analyses of the practicality of the various approaches.  The exhaustiveness of their efforts makes this volume a comprehensive one-stop shop for fund manager evaluation and portfolio analytics. Highly recommended for professionals who evaluate portfolio managers (e.g., wealth managers, advisers, fund allocators), Performance Evaluation and Attribution of Security Portfolios blends traditional concepts of portfolio evaluation with the latest academic findings. Unlike books that are either concerned exclusively with nuts-and-bolts issues or unduly theoretical, it provides an optimal balance for the benefit of both practitioners and academicians." -- Kishor Bagri, CFA, The CFA Institute Enterprising Investor blog

    "Performance Evaluation and Attribution of Security Portfolios is compulsory reading for anyone who has professional responsibilities that involves performance measurement. Fortunately for these readers the authors are writers with gifts rarely found in textbooks." --Jack L. Treynor, President of Treynor Capital Management

    "This excellent book covers everything a practitioner needs to know to construct a comprehensive system for analyzing investment performance." -- Journal of Investment Management, Fourth Quarter 2014

    "…the new book…is the first one to present the actual status in theory and practice comprehensively and to combine the views of an academic…and a practitioner…this is a unique book and a must have for everybody seriously interested in these subject areas."--The Journal of Performance Management, Fall 2013

    "The authors provide an excellent comprehensive treatment, running from widely used traditional measures all the way to methods pushing the knowledge frontier, complemented with practical information such as global reporting standards. As such, this book is a valuable resource for anyone facing the important challenge of evaluating the performance of investment managers."--Robert F. Stambaugh, The Wharton School of the University of Pennsylvania

    "Wermers and Fischer provide a timely review of a rapidly developing subject, pitched at roughly the advanced MBA level. It is particularly strong and useful in its coverage of holdings-based performance measurement. This is where the field is going, making the book a must-read."--Wayne Ferson, University of Southern California

    "An excellent in-depth review of state-of-the-art approaches to performance evaluation and attribution. A worthwhile read for both academics and practitioners."--Lubos Pastor, University of Chicago


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