Details

Practical Risk-Adjusted Performance Measurement


Practical Risk-Adjusted Performance Measurement


The Wiley Finance Series 2. Aufl.

von: Carl R. Bacon

66,99 €

Verlag: Wiley
Format: PDF
Veröffentl.: 22.10.2021
ISBN/EAN: 9781119838869
Sprache: englisch
Anzahl Seiten: 320

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Beschreibungen

<p><b>Explore different measures of ex-post risk-adjusted performance measurement and learn to choose the correct one </b></p> <p>In the newly revised Second Edition of <i>Practical Risk-Adjusted Performance Measurement</i>, accomplished risk and investment expert Carl R. Bacon delivers an insightful, accessible, and real-world guide to ex-post risk measurement. The author bridges the gap between theory and practice, showing you how to apply the former to the latter without introducing unnecessary mathematical complexity. </p> <p>The book describes the fundamentals of risk in the asset management context and the descriptive statistics used to describe it. It builds on that foundation with detailed examinations of concepts like regression, drawdown, and partial moments, before moving on to topics like fixed income risk and Prospect Theory. </p> <p>With helpful additions that include recently developed measures of risk, supplementary explanatory sections, and six brand-new chapters, this book also offers: </p> <ul> <li>A practical classification of all ex-post risk measures and how they connect to one another </li> <li>An explanation of how risk-adjusted performance measures impact performance fees </li> <li>A discussion of risk measure dashboard designs </li> <li>Instructions on how appraisal measures should be used for manager selection </li> </ul> <p>Perfect for portfolio managers, asset owners, risk controllers, and investment performance analysts, <i>Practical Risk-Adjusted Performance Measurement</i> is an indispensable resource for anyone looking for a hands-on exploration of the buy-side, asset management perspective. </p>
<p><b>Chapter 1 Introduction 15</b></p> <p>Definition of risk 15</p> <p>Risk types 15</p> <p>Risk management v Risk control 18</p> <p>Risk aversion 19</p> <p>Ex-post and ex-ante 19</p> <p>Dispersion 20</p> <p><b>Chapter 2 Descriptive statistics 21</b></p> <p>Mean (or arithmetic mean) 21</p> <p>Annualised return 22</p> <p>Continuously compounded returns (or log returns) 22</p> <p>Winsorised mean 23</p> <p>Mean absolute deviation (or mean deviation) 24</p> <p>Variance 25</p> <p>Mean difference (absolute mean difference or Gini mean difference) 30</p> <p>Relative mean difference 31</p> <p>Bessel’s correction (population or sample, n or n-1) 31</p> <p>Sample variance 35</p> <p>Standard deviation (variability or volatility) 36</p> <p>Annualised risk (or time aggregation) 37</p> <p>The Central Limit Theorem 38</p> <p>Frequency and number of data points 38</p> <p>Alternative risk annualisation methods 39</p> <p>Normal (or Gaussian) distribution 40</p> <p>Histograms 42</p> <p>Skewness (Fisher’s or moment skewness) 43</p> <p>Sample skewness 44</p> <p>Kurtosis (Pearson’s kurtosis) 45</p> <p>Excess kurtosis (or Fisher’s kurtosis) 47</p> <p>Sample kurtosis 47</p> <p>Bera-Jarque statistic (or Jarque-Bera) 48</p> <p>Covariance 53</p> <p>Sample covariance 54</p> <p>Correlation () 54</p> <p>Sample correlation 55</p> <p>Autocovariance 55</p> <p>Autocorrelation (or serial correlation) 57</p> <p>Annualised variability if returns are autocorrelated 60</p> <p><b>Chapter 3 APPRAISAL MEASURES 62</b></p> <p>Performance appraisal 62</p> <p>Sharpe ratio (reward to variability, Sharpe index) 63</p> <p>Roy ratio 65</p> <p>Risk-free rate 66</p> <p>Alternative Sharpe ratio 66</p> <p>Revised Sharpe ratio 67</p> <p>Adjusted Sharpe Ratio 68</p> <p>Skew-adjusted Sharpe Ratio 69</p> <p>Skewness-Kurtosis ratio 74</p> <p>Alternative adjusted Sharpe Ratios 74</p> <p>Smoothing-adjusted Sharpe Ratio 75</p> <p>MAD ratio 76</p> <p>Gini ratio 76</p> <p>Relative risk 77</p> <p>Tracking error (or tracking risk, relative risk, active risk) 77</p> <p>Relative skewness 78</p> <p>Relative kurtosis 79</p> <p>Information ratio 79</p> <p>Geometric information ratio 80</p> <p>Modified information ratio 87</p> <p>Adjusted information ratio 88</p> <p>Skew-adjusted information ratio 88</p> <p><b>Chapter 4: Regression Analysis 94</b></p> <p>Regression analysis 94</p> <p>Regression equation 95</p> <p>Regression alpha 95</p> <p>Regression beta 95</p> <p>Regression epsilon 95</p> <p>Capital Asset Pricing Model (CAPM) 96</p> <p>Beta () (systematic risk or volatility) 97</p> <p>Jensen’s alpha (Jensen’s measure or Jensen’s differential return or ex-post alpha) 97</p> <p>Annualised alpha 98</p> <p>Bull beta (+) 106</p> <p>Bear beta (-) 106</p> <p>Beta timing ratio 106</p> <p>Market timing 107</p> <p>Systematic risk 115</p> <p>Correlation 115</p> <p>R2(or coefficient of determination) 116</p> <p>Specific (or residual) risk 117</p> <p>The Geometry of Risk 120</p> <p>Treynor ratio  (Reward to volatility) 124</p> <p>Modified Treynor ratio 124</p> <p>Appraisal ratio (or Treynor-Black ratio) 125</p> <p>Modified Jensen 126</p> <p>Fama decomposition 126</p> <p>Selectivity 127</p> <p>Diversification 127</p> <p>Net selectivity 127</p> <p>Fama-French three factor model 128</p> <p>Three factor alpha (or Fama-French alpha) 129</p> <p>Carhart four factor model 129</p> <p>Four factor alpha (or Carhart’s alpha) 130</p> <p>Types of Alpha 130</p> <p>Multi-factor Models 131</p> <p><b>Chapter 5 Drawdown 132</b></p> <p>Drawdown 132</p> <p>Average drawdown 132</p> <p>Maximum drawdown 133</p> <p>Largest individual drawdown 133</p> <p>Recovery time (or drawdown duration) 133</p> <p>Drawdown deviation 134</p> <p>Ulcer index 134</p> <p>Pain index 135</p> <p>Calmar ratio (or Drawdown ratio) 136</p> <p>MAR ratio 136</p> <p>Sterling ratio 136</p> <p>Sterling-Calmar ratio 137</p> <p>Burke ratio 138</p> <p>Modified Burke ratio 138</p> <p>Martin ratio (or Ulcer performance index) 138</p> <p>Pain ratio 138</p> <p>Active (or relative) Drawdown 143</p> <p><b>Chapter 6 Partial Moments 148</b></p> <p>Downside risk (or semi-standard deviation) 148</p> <p>Downside potential 149</p> <p>Pure downside risk 149</p> <p>Half variance (or semi-variance) 149</p> <p>Upside risk (or upside uncertainty) 150</p> <p>Mean absolute moment 150</p> <p>Omega ratio () 151</p> <p>Bernardo & Ledoit (or gain–loss) ratio 151</p> <p>d ratio 151</p> <p>Omega-Sharpe ratio 152</p> <p>Sortino ratio 153</p> <p>Reward to half-variance 153</p> <p>Downside risk Sharpe ratio 154</p> <p>Downside information ratio 154</p> <p>Sortino-Satchell ratio 155</p> <p>Kappa ratio 155</p> <p>Upside potential ratio 156</p> <p>Volatility skewness 156</p> <p>Variability skewness 157</p> <p>Farinelli- Tibiletti Ratio 160</p> <p>Gain-loss skewness 160</p> <p>Downside Skewness & Kurtosis 161</p> <p>Sortino Ratio with higher order moments 161</p> <p><b>Chapter 7 Prospect Theory 165</b></p> <p>Prospect ratio 165</p> <p>New Prospect ratio 166</p> <p>Omega-Prospect ratio 166</p> <p><b>Chapter 8 Extreme Risk 170</b></p> <p>Extreme events 170</p> <p>Extreme value theory 170</p> <p>Value at Risk (VaR) 170</p> <p>Relative VaR 171</p> <p>Ex-post VaR 171</p> <p>Potential upside (gain at risk) 172</p> <p>Percentile rank 172</p> <p>VaR calculation methodology 175</p> <p>Parametric VaR 175</p> <p>Modified VaR 176</p> <p>Historical simulation (or non-parametric) 177</p> <p>Monte Carlo simulation 177</p> <p>Which methodology for calculating VaR should be used? 178</p> <p>VaR Interpretation 178</p> <p>Frequency and time aggregation 180</p> <p>Time horizon 180</p> <p>Window length 181</p> <p>Reward to VaR 181</p> <p>Reward to relative VaR 182</p> <p>Double VaR ratio 183</p> <p>Conditional VaR (expected shortfall, tail loss, tail VaR or average VaR) 183</p> <p>Upper CVaR or CVaR+ 184</p> <p>Lower CVaR or CVaR- 184</p> <p>Tail gain (expected gain or expected upside) 186</p> <p>Conditional Sharpe ratio (STARR ratio or reward to conditional VaR) 191</p> <p>Modified Sharpe ratio (reward to modified VaR) 191</p> <p>Tail risk 191</p> <p>Tail ratio 192</p> <p>Rachev ratio (or R ratio) 192</p> <p>Generalised Rachev ratio 194</p> <p>Drawdown at risk 194</p> <p>Conditional drawdown at risk 194</p> <p>Reward to conditional drawdown 195</p> <p>Generalised Z ratio 195</p> <p><b>Chapter 9 Fixed Income Risk 197</b></p> <p>Pricing fixed income instruments 197</p> <p>Redemption yield (yield to maturity) 197</p> <p>Weighted average cash flow 197</p> <p>Duration (effective mean term, discounted mean term or volatility) 198</p> <p>Macaulay duration 198</p> <p>Macaulay-Weil duration 199</p> <p>Modified duration 199</p> <p>Portfolio duration 200</p> <p>Effective duration (or option-adjusted duration) 202</p> <p>Duration to worst 204</p> <p>Convexity 204</p> <p>Modified convexity 205</p> <p>Effective convexity 205</p> <p>Portfolio convexity 207</p> <p>Bond returns 207</p> <p>Duration beta 209</p> <p>Reward to duration 209</p> <p><b>Chapter 10 miscellaneous Risk Measures 210</b></p> <p>Upside Capture Ratio (or up capture indicator) 210</p> <p>Downside capture ratio (or down capture indicator) 210</p> <p>Up/down capture (or Capture ratio) 211</p> <p>Up number ratio 216</p> <p>Down number ratio 216</p> <p>Up percentage ratio 217</p> <p>Down percentage ratio 217</p> <p>Percentage gain ratio 217</p> <p>Batting Average (or Relative Batting Average) 217</p> <p>Hurst index (or Hurst exponent) 218</p> <p>Relative Hurst Index (or Active Hurst) 225</p> <p>Bias ratio 231</p> <p>Active Share 237</p> <p>K ratio 239</p> <p><b>Chapter 11 Risk-adjusted Return 248</b></p> <p>Risk-adjusted return 248</p> <p>M2 248</p> <p>M2 excess return 250</p> <p>Differential return 250</p> <p>GH1 (Graham & Harvey 1) 252</p> <p>GH2 (Graham & Harvey 2) 252</p> <p>Correlation and risk-adjusted return M3 253</p> <p>Return adjusted for downside risk 253</p> <p>Adjusted M2 257</p> <p>Skew-adjusted M2 257</p> <p>Omega excess return 258</p> <p><b>Chapter 12: A Periodic Table of Risk Measures 259</b></p> <p>A Periodic Table of Risk Measures 259</p> <p>Periodic Table Design 260</p> <p>Filling the Periodic Table 261</p> <p>Notation 264</p> <p><b>Chapter 13: Risk-adjusted Performance Fees 269</b></p> <p>Performance Fees 269</p> <p>Asymmetric or Symmetric 269</p> <p>Performance Fees in Practice 273</p> <p><b>Chapter 14: Performance Dashboards 276</b></p> <p>Effective dashboards 276</p> <p>Data visualisation tools 277</p> <p><b>Chapter 15: Manager Selection 279</b></p> <p>Asset Manager Selection 279</p> <p>Manager Evaluation 280</p> <p>Portfolio Evaluation 281</p> <p>Monitoring and Control 282</p> <p><b>Chapter 16: The Four Dimensions of Performance 284</b></p> <p>Ex-post Return (The traditional dimension) 285</p> <p>Ex-post Risk (The neglected dimension) 285</p> <p>Ex-ante Return (The unknown dimension) 285</p> <p>Ex-ante Risk (The “sexy” dimension) 286</p> <p>Risk efficiency ratio 286</p> <p>Performance efficiency 287</p> <p>Ex-ante Risk Standards 287</p> <p>Consistency in calculations and comparison 288</p> <p>Disclosure 288</p> <p>Recognition of adherence to best practice 288</p> <p>More robust internal process and control 288</p> <p><b>Chapter 17: Which Risk Measure to Use? 291</b></p> <p>Why measure ex-post risk? 291</p> <p>Which risk measures to use? 291</p> <p>Hedge funds 295</p> <p>Smoothing 296</p> <p>Outliers 299</p> <p>Data mining 300</p> <p>Risk measures and the Global Investment Performance Standards (GIPS®) 300</p> <p>Fund rating systems 303</p> <p>Which measures are actually used? 304</p> <p>Which risk measures should really be used? 309</p> <p>Common Errors to avoid 310</p> <p><b>Chapter 18: Risk Control 311</b></p> <p>Regulations in the investment risk area 311</p> <p>Risk control structure 312</p> <p>Risk management 313</p> <p>Glossary of Key Terms 318</p> <p>Appendix A – Composite Internal Risk Measures 321</p> <p>Bibliography 323</p>
<p><b>CARL R. BACON,</b> CIPM, is Chief Advisor to Confluence. He is a member of the Advisory Board of the <i>Journal of Performance Measurement</i> and Founder of The Freedom Index Company. He was formerly Chairman of StatPro Plc from 2000 to 2017.</p>
<p>Many financial professionals find explorations of risk to be unduly complex and mathematically oriented. In the newest edition of <i>Practical Risk-adjusted Performance Measurement,</i> however, Carl R. Bacon provides readers with an insightful and comprehensive examination of ex-post risk measurement that doesn’t get bogged down in the numbers.</p> <p>Written for risk and performance measurement professionals from a buy-side, asset management perspective, the author bridges the gap between theory and practice, focusing on quantitative and practical ex-post measures instead of the qualitative aspects of risk. Throughout, he provides numerous worked examples of risk measures and their interpretation. <p>The book consists of a simplified—but sophisticated—approach to risk, showing readers how to use different risk measures in different situations at different times. It offers explanations of how to use these different measures in a concise and easy-to-navigate fashion. <p>From the fundamentals of the subject of risk to the use of risk-adjusted performance measures in the context of performance fees, <i>Practical Risk-adjusted Performance Measurement</i> explores every critical aspect of the role played by risk in performance measurement. Readers will build on their knowledge of concepts including regression, drawdown, partial moments, fixed income risk, and Prospect Theory, along with the descriptive statistics essential to the work in this field. <p>Finally, the author explores the interconnection between ex-post risk measures, discusses various risk measure dashboard designs, and examines how appraisal measures should be used for manager selection. <p>The latest edition of <i>Practical Risk-adjusted Performance Measurement</i> is an indispensable guide for portfolio managers, investment performance analysts, risk controllers, and performance directors. It’s also a must-read guide for any professional seeking an intuitive and evidence-based exploration of the buy-side, asset management perspective.
<p><b>PRACTICAL RISK-ADJUSTED PERFORMANCE MEASUREMENT</b></p> <p><b>An indispensable to ex-post risk measurement</b> <p>While many examinations of risk tend towards mathematical complexity, the latest edition of <i>Practical Risk-adjusted Performance Measurement </i>delivers a practical, insightful, and comprehensive discussion of ex-post risk measurement. Filled with implementable and user-friendly content, this book transforms the subject of risk into a straightforward and immensely useful resource. <p>The book is written from a buy-side, asset management perspective and includes a companion website that hosts supporting documents, worked examples, and a Periodic Table of Risk. In this new edition, readers will also find the most up-to-date measures accompanied by illustrative explanations. From the fundamentals of risk to regression measures, risk-adjusted returns, and the four dimensions of performance, Carl R. Bacon offers readers a roadmap to the selection and implementation of appropriate risk measures in a wide variety of different investment scenarios. <p><i>Practical Risk-adjusted Performance Measurement</i> remains the industry-leading guide to the application of risk measures in the real-world. It is ideal for portfolio managers, investment performance analysts, and others who need a one-stop resource to help build their understanding of risk-adjusted performance.

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