Portfolio Management Flashcards
Performance attribution
Key drivers that generated the account performance
Performance appraisal
Determines whether the performance was affected primarily by investment decisions, overall market or by luck
What is the investment decision making process?
Idea generation
Idea implementation
Portfolio construction
Portfolio monitoring
Give 5 points on return based style analysis
- RSBA estimates the portfolios sensitivities to security market indexes for a set of risk factors
- The approach is top down in nature
- Little additional data is needed
- It can determine the key risk factors and return drivers for basic and complex strategies
- uses objective data and allows compatibility
Hsba
- Looks at the actual securities included in the portfolio
- is bottom up
- most appropriate for equity based investment
- drawback is increased computational requirement
- complexity increases and transparency decreases
Define decision price
The price at the time the investor made the investment decision
Arrival price
The price of the security when the order is sent to the market for execution
VWAP
The average price of all trades weighted by volume, over the trading horizon
- managers mast use the VWAP benchmark when they want to participate in volume patterns over a day
Short term Alpha
Urgency - high
Reference price - liked to estimate of fair value combined with an arrival price benchmark for orders
Execution method - computer algorithm
Long term Alpha
Urgency - low
Reference price - difficult to use in practice
Execution method - sell shares gradually in small parts
Risk rebalance - to hedge risk exposure
Urgency - low since trader is both buying and selling
Reference price - TWAP
Execution method - algorithmically Target TWAP over the next couple of days
Principle trades
The dealers assume the risk relating to executing the order
Agency trades
Broker finds the other side of the trade
What is execution risk?
The risk of adverse price movements over the time horizon, is caused by trading too slowly
