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Lernmaterialien für Performance Analysis an der Universität Wien

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TESTE DEIN WISSEN

Why is performance analysis important?

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TESTE DEIN WISSEN

Performance is the ultimate product of asset managers, monitoring and analyzing performance is one of the key functions in asset managemtn in order to understand the quality drivers of their products

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TESTE DEIN WISSEN

What are possible difficulties when calculating money-weighted returns?

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TESTE DEIN WISSEN

The central assumption is unlikely to be correct. It is that the money-weighted returns are a constant force of return. 


The weighting can penalize fund managers because of cash flows over which they have no control. So if investors add large sums to a portfolio just before its performance rises, then it equates to positive actions. Because the larger portfolio benefits more from the growth of the portfolio than if the contribtion had not been made. The opposit it true as well. If an investor withdraws funds from a portfolio just before a surge in performance, then it equates to a negative action. The now-smaller fund sees less benefit (in dollar terms) from the growth of the portfolio than if the withdrawal had not occurred.


The MWRR shows the reward/penalty investors receive from the indiv. timing of their contributions/withdrawals

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TESTE DEIN WISSEN

Explain the two key attribution effects: allocation and selection. What is the difference
between allocation in the BHB and BF model?

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TESTE DEIN WISSEN

Attribution effects quantify the qualit of an asset manager's active investment decision. There usually two basic types of decisions: allocation decison - how much should be allocated to certain asset classes? selection decision - which securities should be selected?


In the BF model the allocation effect is interpreted differently. It is the sum of the return differences times the weight differences. 


It is positive if contributor k which outperforms the benchmark is overweight in the portfolio or if contributor k which underperforms the benchmark is underweight in the portfolio

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TESTE DEIN WISSEN

In the context of contribution linking, what do we understand by ad-hoc methods? Explain
and discuss.

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TESTE DEIN WISSEN

They are more a workaround than a solution.

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TESTE DEIN WISSEN

Explain why relative contributions should not be defined as the difference in absolute
contributions. Give an example.

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TESTE DEIN WISSEN

think!!

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TESTE DEIN WISSEN

Under what circumstances are selection effects positive (in the BF model)?

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TESTE DEIN WISSEN

Selection effects are positive if contributor k outperforms the benchmark in terms of return.

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TESTE DEIN WISSEN

Name and explain the key tasks of performance analysis and discuss its importance in asset
management

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TESTE DEIN WISSEN

The key tasks are:

performance measurement - Measures the quality of asset managers


Contribution analysis - breaks absolute/relative performance down to the position or some aggregate level (e.g. countries..)


Attribution analysis - measures the impact of investment decisions on a portfolio's outperformance 


All of the mentioned tasks are important. However the attribution analysis is the backbone of performance analysis.

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TESTE DEIN WISSEN

What is the time-weighted rate of return?

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TESTE DEIN WISSEN

Each external cash flow marks the beginning of a new subperiod. Subperiods can be linked geometrically (multiplicative). It gives the period-specific rates of return. Is independent of external cash flows. The valuation for all subperiods is required. It is the return produced by the manager and used to evaluate the managers if they have no discretion about external cash flows. Should be used if the manger isn't controlling the flows otherwise use the MWRR.

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TESTE DEIN WISSEN

What is contribution analysis?

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TESTE DEIN WISSEN

It aims to break down performance to contributors. Absoute / relaitve break down. Contributors can be positions, asset classes, countries, sectors, ratings, etc

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TESTE DEIN WISSEN

What is the money weighted rate of return?

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TESTE DEIN WISSEN

Aka dollar weighted return. It is defined as the internal rate of return, which is a constant or average rate of return. It depends on external cash flows. Only initial and final valuations are required. It is the return experienced by the investors. Used to evaluate managers if they have discretion about the external cash flows. It is the best approach in most cases except for when a money manager is not controlling the flows.

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TESTE DEIN WISSEN

What is necessary to fully understand performance or returns?

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TESTE DEIN WISSEN

How do we measure? TWRR vs MWRR and discrete vs continuous returns.

What do we measure? Periods? Total return or price perfomrance, absolute or relative performance, net or gross of fees, befor or after taxes

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TESTE DEIN WISSEN

What is the unit price method?

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TESTE DEIN WISSEN

The unit price is the price per share. Pt = Vt/nt

With this method it is not necessary to take subscriptions or redemptions into account. Other cash flows such as distributions of dividends and/or interest income have to be considered.

For each cash flow there is an adjustment factor calculated:
Ft = 1+Ct/Pt

There is also a cumulated adjustment factor gamma calculated. It reflects all cash flow prior to or at t:
gamma = product of all Fts

Then you transform the time series of unit prices P into a series of unit prices adjusted for the occurence of cash flows P':
P't = Pt * gamma

You can use this to calculate performance between any two values of time series P'

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Q:

Why is performance analysis important?

A:

Performance is the ultimate product of asset managers, monitoring and analyzing performance is one of the key functions in asset managemtn in order to understand the quality drivers of their products

Q:

What are possible difficulties when calculating money-weighted returns?

A:

The central assumption is unlikely to be correct. It is that the money-weighted returns are a constant force of return. 


The weighting can penalize fund managers because of cash flows over which they have no control. So if investors add large sums to a portfolio just before its performance rises, then it equates to positive actions. Because the larger portfolio benefits more from the growth of the portfolio than if the contribtion had not been made. The opposit it true as well. If an investor withdraws funds from a portfolio just before a surge in performance, then it equates to a negative action. The now-smaller fund sees less benefit (in dollar terms) from the growth of the portfolio than if the withdrawal had not occurred.


The MWRR shows the reward/penalty investors receive from the indiv. timing of their contributions/withdrawals

Q:

Explain the two key attribution effects: allocation and selection. What is the difference
between allocation in the BHB and BF model?

A:

Attribution effects quantify the qualit of an asset manager's active investment decision. There usually two basic types of decisions: allocation decison - how much should be allocated to certain asset classes? selection decision - which securities should be selected?


In the BF model the allocation effect is interpreted differently. It is the sum of the return differences times the weight differences. 


It is positive if contributor k which outperforms the benchmark is overweight in the portfolio or if contributor k which underperforms the benchmark is underweight in the portfolio

Q:

In the context of contribution linking, what do we understand by ad-hoc methods? Explain
and discuss.

A:

They are more a workaround than a solution.

Q:

Explain why relative contributions should not be defined as the difference in absolute
contributions. Give an example.

A:

think!!

Mehr Karteikarten anzeigen
Q:

Under what circumstances are selection effects positive (in the BF model)?

A:

Selection effects are positive if contributor k outperforms the benchmark in terms of return.

Q:

Name and explain the key tasks of performance analysis and discuss its importance in asset
management

A:

The key tasks are:

performance measurement - Measures the quality of asset managers


Contribution analysis - breaks absolute/relative performance down to the position or some aggregate level (e.g. countries..)


Attribution analysis - measures the impact of investment decisions on a portfolio's outperformance 


All of the mentioned tasks are important. However the attribution analysis is the backbone of performance analysis.

Q:

What is the time-weighted rate of return?

A:

Each external cash flow marks the beginning of a new subperiod. Subperiods can be linked geometrically (multiplicative). It gives the period-specific rates of return. Is independent of external cash flows. The valuation for all subperiods is required. It is the return produced by the manager and used to evaluate the managers if they have no discretion about external cash flows. Should be used if the manger isn't controlling the flows otherwise use the MWRR.

Q:

What is contribution analysis?

A:

It aims to break down performance to contributors. Absoute / relaitve break down. Contributors can be positions, asset classes, countries, sectors, ratings, etc

Q:

What is the money weighted rate of return?

A:

Aka dollar weighted return. It is defined as the internal rate of return, which is a constant or average rate of return. It depends on external cash flows. Only initial and final valuations are required. It is the return experienced by the investors. Used to evaluate managers if they have discretion about the external cash flows. It is the best approach in most cases except for when a money manager is not controlling the flows.

Q:

What is necessary to fully understand performance or returns?

A:

How do we measure? TWRR vs MWRR and discrete vs continuous returns.

What do we measure? Periods? Total return or price perfomrance, absolute or relative performance, net or gross of fees, befor or after taxes

Q:

What is the unit price method?

A:

The unit price is the price per share. Pt = Vt/nt

With this method it is not necessary to take subscriptions or redemptions into account. Other cash flows such as distributions of dividends and/or interest income have to be considered.

For each cash flow there is an adjustment factor calculated:
Ft = 1+Ct/Pt

There is also a cumulated adjustment factor gamma calculated. It reflects all cash flow prior to or at t:
gamma = product of all Fts

Then you transform the time series of unit prices P into a series of unit prices adjusted for the occurence of cash flows P':
P't = Pt * gamma

You can use this to calculate performance between any two values of time series P'

Performance Analysis

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