Abstract
Performance evaluation consists of performance reporting and performance analysis. Performance reporting is about how well a portfolio did over some past period. Performance analysis seeks to explain why the portfolio performed as it did. This chapter discusses performance reporting from the perspective of the portfolio manager and from the perspective of the portfolio's investors. It then discusses the two main forms of performance analysis: holding-based performance attribution and returns-based performance analysis. Attribution analysis relies on portfolio weights and the underlying security returns over a specific period. Returns-based analysis utilizes portfolio-level returns to estimate the statistical relationship to economic or market factors. The chapter concludes by discussing the limitations of performance analysis.
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