Factor attribution that adds up

Boer, Sanne de

doi:10.1057/jam.2012.21

Cited by 2 publications

(1 citation statement)

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“…The key element that allows them to do this is a constraint on the net exposure of the portfolio: 1 • x t = 1. Building upon this idea, the author of (de Boer, 2012) generalises the work of (Jagannathan & Ma, 2003) by showing how constraints imply a "shrinkage estimate" of the mean and covariance of returns. His work allows to consider more general constraints but as it uses the same mathematical framework it suffers from the same shortcomings.…”

Section: Effective Quadratic Costs and Effective Quadratic Riskmentioning

confidence: 99%

Signal-Wise Performance Attribution for Constrained Portfolio Optimisation

Durin

2014

SSRN Journal

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Performance analysis, from the external point of view of a client who would only have access to returns and holdings of a fund, evolved towards exact attribution made in the context of portfolio optimisation, which is the internal point of view of a manager controlling all the parameters of this optimisation. Attribution is exact, that-is-to-say no residual "interaction" term remains, and various contributions to the optimal portfolio can be identified: predictive signals, constraints, benchmark. However constraints are identified as a separate portfolio and attribution for each signal that are used to predict future returns thus corresponds to unconstrained signal portfolios. We propose a novel attribution method that put predictive signals at the core of attribution and allows to include the effect of constraints in portfolios attributed to every signal. We show how this can be applied to various trading models and portfolio optimisation frameworks and explain what kind of insights such an attribution provides.

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Section: Effective Quadratic Costs and Effective Quadratic Riskmentioning

confidence: 99%