Professional articles and academic papers on performance analysis. Attribution analysis seeks to compare the return from a fund with the return from a benchmark, and to explain the differences by decomposing the excess return into its component parts. Some of our most popular research on attribution analysis considers performance attribution methodology from first principles, providing... a primer on attribution analysis and models. Others white papers and reports focus on particular models, such as the Brinson Model, fixed income return attribution, equity attribution analysis, or the dissecting of hedge fund returns. A key aspect of performance is of course reporting to clients, and here the CFA provides guidance for effective investment reporting with its Principles for Investment Reporting model, known as GIPS (Global Investment Performance Standards) and encapsulated in the GIPS Handbook. A proper attribution of returns illuminates the contribution made by active managers, enabling judgements to be formed of whether excess returns have arisen from skill or luck. For most investment strategies, however, an extended period of time is required before such judgements can be made with any confidence.
The exercise of translating a specified future investment objective into a strategy to be implemented in the present requires vision. It necessitates the ability to effectively evaluate today’s opportunities, conceptualize the risks that may materialize across an investment horizon, and implement a plan to manage those risks…
The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short…
One key measure of successful active management lies in the ability of a manager or a strategy to outperform their peers repeatedly. Consistent success is the one way to differentiate a manager’s luck from skill. The S&P Persistence Scorecard shows that few funds consistently outperformed their peers; 11.4% of domestic…
This paper provides an overview of S&P Dow Jones Indices’ methodology for defining the U.S. mid-cap equity universe. It outlines the so-called “mid-cap premium,” analyzing it from factor and sector perspectives. It shows that active managers have underperformed the S&P MidCap 400, historically. It highlights how mid-…
Revisiting the issue of return predictability, we show there is substantial predictive power in combining forecasting variables. We apply correlation screening to combine twenty variables that have been proposed in the return predictability literature, and demonstrate forecasting power at a six-month horizon. We illustrate…
While comparing active funds against respective benchmark indices is a typical practice to evaluate their performance, persistence is an additional test that can reveal fund managers’ skills in different market environments. In this report, we measure the performance persistence of active funds that outperformed their peers…
Risk and return are two sides of the same coin. Beyond relative performance of funds, market participants are also interested in the risks taken to achieve those returns. This motivated us to examine the performance of actively managed funds on a risk-adjusted basis. The Risk-Adjusted SPIVA Scorecard measures the performance…
The exercise of translating a specified future investment objective into a strategy to be implemented in the present requires vision. It necessitates the ability to effectively evaluate today’s opportunities, conceptualize the risks that may materialize across an investment horizon, and implement a plan to manage those risks…
Join experts from FTSE Russell and DWS as they review how tilt-tilt indexes work, analyse various factor indexes and discuss top/bottom contributors and detractors from a factor, sector, single stock, country or currency perspective.
This paper presents an equilibrium model of stock return extrapolation in the presence of stochastic stock return volatility. The model is highly tractable, leading to closed-form solutions for the stock price, its dynamics, variance risk premium as well as providing analytic option pricing formulas that nest the Heston…
The outperformance of companies with higher women-in-leadership (WIL) metrics has led to the development of so-called gender lens investing. Total publicly available equity and fixed-income offerings within this emerging sector have grown to over $2.4 billion in assets under management (AUM). So what are the characteristics…
Momentum’s recovery in Q2 was a welcome event for many factor-based investors. Unfortunately, that recovery did not extend to other commonly used factors and probably wasn’t enough to pull quant managers out of the hole. Making matters worse, implementation constraints likely hurt performance. Axioma’s monthly US Large-Cap…
In their 2019 article, “Superstar Investors,” Brooks, Tsuji and Villalon examine the track records of four famous investors from a factor perspective. They find that for each of the “superstar” investors, success is partly attributable to longterm exposure to factors that have historically produced positive returns. In this…
In their 2019 article, “Superstar Investors,” Brooks, Tsuji and Villalon examine the track records of four famous investors from a factor perspective. They find that for each of the “superstar” investors, success is partly attributable to long-term exposure to factors that have historically produced positive returns. In this…
This paper explains the risk and returns of US corporate bond indices using a set of economically-motivated factors. In particular, I find that options markets explain a great deal of credit returns. Two particular features of corporate bonds generate option exposure. The first is that, in accordance with the Merton model, a…
After a tough end to 2018 for factor-based managers, hopes were high for a turnaround this year. Unfortunately, the turn has failed to materialize. Many factors and associated portfolios continue to struggle. Beyond that, the duration of factor underperformance has been far longer than usual, the return correlation among…
Not all alpha is created equally. We have argued in past publications that in order for active portfolio returns to add economic value for investors versus benchmark returns, active returns must be: 1) positive, 2) reliable, and 3) uncorrelated to benchmark.
We propose a new class of performance measures for Hedge Fund (HF) returns based on a family of empirically identifiable stochastic discount factors (SDFs). The SDF-based measures incorporate no-arbitrage pricing restrictions and naturally embed information about higher-order mixed moments between HF and benchmark factors…
