Mastering Attribution in Finance

Andrew Colin is a leading authority in the field of investment performance attribution. He's worked at Citigroup, the Commonwealth Bank, Zurich Investment Management, JP Morgan, StatPro and Queensland University of Technology. He's also managed many consulting projects in defence and applied statistics.

• About the author AcknowledgementsPreface 1 An introduction to attribution 1.1 Securities, portfolios and risk1.2 Types of risk1.3 Return and attribution1.4 Strategy tagging1.5 Types of attribution1.6 Book structurePART 1 Equity attribution 2 The basics of performance measurement2.1 Introduction2.2 Defining return2.3 Compounded returns2.4 Time-weighted and money-weighted returns2.5 Portfolio returns2.6 Transactions and cash flow2.7 Sector returns2.8 Calculating portfolio returns over successive intervals2.9 Futures cash offsets2.10 Edge cases2.11 External returns2.12 Benchmarks2.13 Active return2.14 Stochastic attribution2.15 Liability-driven investment (LDI)3 Equity attribution 3.1 Introduction3.2 Brinson attribution3.3 Single level Brinson attribution3.4 Multiple-level asset allocation3.5 Off-benchmark securities3.6 Successive portfolio attribution3.7 Security-level attribution4 Currency attribution 4.1 Introduction4.2 Currency attribution returns4.3 Performance and attribution on unhedged portfolios4.4 Attribution on an unhedged portfolio4.5 Portfolio hedging4.6 Currency forwards4.7 Hedging and risk4.8 Naïve attribution on a hedged portfolio4.9 Measuring hedge returns4.10 Brinson attribution on a hedged portfolio4.11 Problems with the Brinson approach when hedging is active4.12 Calculating base and return premiums4.13 The Karnosky-Singer attribution model4.14 Running Karnosky-Singer attribution on an unhedged portfolio5 Smoothing algorithms 5.1 Why returns do not combine neatly over time5.2 The importance of internally consistent return contributions5.3 Path-independence5.4 Carino smoothing5.5 Geometric smoothing5.6 Foreign exchange return and smoothing5.7 SummaryPART 2 Fixed income attribution 6 An overview of fixed income risks 6.1 Introduction6.2 What is a bond?6.3 Pricing conventions6.4 Maturity6.5 Coupons6.6 Discounted cash flows and net present value6.7 Pricing a bond from its discounted cash flows6.8 Bond yield and carry return6.9 Prices and yields6.10 Return of a bond6.11 Credit effects6.12 The three Cs7 Yield curves in attribution 7.1 Introduction7.2 Why interest rates vary by term7.3 Interpolation7.4 Par curves and zero curves7.5 Credit spreads8 Pricing, risk and the attribution equation 8.1 Introduction8.2 Pricing securities from first principles8.3 Calculating return using the perturbational equation8.4 Residuals8.5 Stand-alone portfoliosPART 3 Sources of fixed income return 9 Carry return9.1 Introduction9.2 Carry-based investment strategies9.3 Types of yield9.4 Calculating carry return9.5 Pros and cons of YTM9.6 Decomposing carry9.7 Which yield to use?9.8 Decomposing carry return9.9 Yield for non-bond securities9.10 Using yield to maturity in attribution reports10 Sovereign curve attribution 10.1 Introduction10.2 Yield curve models10.3 Parallel shift and modified duration, and why they matter10.4 Measuring twist10.5 Taxonomy of curve shifts10.6 Sources of yield curve data<