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A generic framework for monetary performance attribution
Linköping University, Department of Management and Engineering, Production Economics. Linköping University, Faculty of Science & Engineering.
Linköping University, Department of Management and Engineering, Production Economics. Linköping University, Faculty of Science & Engineering.
2019 (English)In: Journal of Banking & Finance, ISSN 0378-4266, E-ISSN 1872-6372, Vol. 105, p. 121-133Article in journal (Refereed) Published
Abstract [en]

We propose a generic framework for performance attribution in monetary terms. Through a second-order Taylor approximation, the changes in portfolio value are attributed to a set of systematic risk factors. By considering two error terms arising from the Taylor approximation, combined with an exact definition of the carry term, we derive a residual-free performance attribution framework, where we exert control over the size of the error terms. The framework incorporates foreign exchange rates and transaction costs, which is illustrated by simulating a European investor acting on the U.S. fixed income market. For the out-of-sample period, we show that we can attribute almost all portfolio value differences and variance using six risk factors obtained from principal component analysis. The results show that our method, in combination with high-quality estimates of risk factors, outperforms other fixed-income attribution models from the literature. (C) 2019 Elsevier B.V. All rights reserved.

Place, publisher, year, edition, pages
ELSEVIER SCIENCE BV , 2019. Vol. 105, p. 121-133
Keywords [en]
Performance attribution; Performance analysis; Fixed income
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-158925DOI: 10.1016/j.jbankfin.2019.05.021ISI: 000472698500009OAI: oai:DiVA.org:liu-158925DiVA, id: diva2:1338202
Available from: 2019-07-20 Created: 2019-07-20 Last updated: 2019-07-20

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Blomvall, JörgenHagenbjörk, Johan
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  • Other style
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  • de-DE
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  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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