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Quantitative Equity Portfolio Management by Daehwan Kim, Ludwig B Chincarini

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CHAPTER 15Performance Measurement and Attribution

There are two ways to spread light: to be the candle or the mirror that reflects it.

—Abraham Lincoln

15.1 INTRODUCTION

Performance measurement and attribution are extremely important to the quantitative equity portfolio management (QEPM) process. Measurement of a portfolio’s return shows how much value the portfolio manager has added to the investment process overall. Performance attribution dissects the return in order to pinpoint the exact sources of value. QEPM is an ongoing process of analysis, implementation, and further analysis. An in-depth review of the portfolio’s performance at regular intervals is essential to honing the investment strategy. Yet portfolio management shops often fail ...

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