2

The basics of performance measurement

2.1 Introduction

2.2 Defining return

2.3 Compounded returns

2.4 Time-weighted and money-weighted returns

2.5 Portfolio returns

2.6 Transactions and cash flows

2.7 Sector returns

2.8 Calculating portfolio returns over successive intervals

2.9 Futures cash offsets

2.10 Edge cases

2.11 External returns

2.12 Benchmarks

2.13 Active return

2.14 Stochastic attribution

2.15 Liability-driven investment (LDI)

2.1 INTRODUCTION

This chapter provides a high-level overview of performance calculation for both individual securities and portfolios of securities.

Routine performance calculations are almost always carried out by specialist software packages that can handle the large volumes of data involved. However, ...

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