Performance attribution
The second phase of performance evaluation, dissecting return into that driven by the benchmark and the differential return, and establishing whether the difference was driven by the manager's skill or by luck.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Alpha returnThe return a portfolio earned over and above what CAPM says was required for the market risk it took — the part of performance not explained by the market.
- BenchmarkThe independently published index a scheme's performance is measured against, chosen to match its investment objective, asset allocation and strategy, and disclosed in the Scheme Information Document.
- BetaHow sharply a share moves relative to the market index — beta 1 moves with the index, above 1 amplifies it, below 1 dampens it. The standard measure of systematic risk.
- Credit riskThe risk that a borrower fails to meet its obligations on a debt instrument — the risk credit rating agencies exist to grade, and the one that triggers a segregated portfolio in a mutual fund.
- Downside riskThe probability of a loss on account of falling asset prices in changing market conditions — the half of volatility investors actually mind, measured by maximum drawdown and value at risk.
- Holding period returnThe total of coupons, income earned on reinvesting them and any capital gain, expressed as a percentage of the purchase price — a crude return for the period actually held, with no compounding in it.
Where this is taught
Free preparation for NISM Series X-A← All terms