Book Review – “Investment Performance Measurement – Evaluating and Presenting Results” by Philip Lawton and Todd Jankowski (editors)

Here’s the handbook for the professional investment manager or for those who want to have in their libraries a reference volume: “Investment Performance Measurement – Evaluating and Presenting Results” not only contains almost 1,000 pages of technical articles, but it is also nicely organized.
In a sense, “Investment Performance Measurement – Evaluating and Presenting Results” represents a complete reference for the CFA (“Chartered Financial Analyst”) who wants to keep in touch with some technical issues. The book contains 5 parts, which take you from the introductions to the portfolio and risk management theories to the latest developments in the field (part 5 is named “Global Investment Performance Standard”, a right adagio for the cross-continental savvy manager).
It is hard for me to start somewhere with this review – and this is because of the content richness. “Investment Performance Measurement – Evaluating and Presenting Results” contains lots of articles on investments performance, some of them very mathematical, others very behavioral and others … well, unusual.
A very mathematical chapter (yet a very interesting one) is called “On the Performance of the Hedge Funds”, which combines a mathematical approach with a risk methodology in order to give the reader a better view on how to approach a fund. It is not easy, since a hedge fund tries to balance actually the risks inherent in the portfolio with a need for strong and constant returns. The fact that few hedge funds manage to have a constant performance over the long term just lays the nature of the game. Yet, when you invest lots of money in such a vehicle, I think you should at least try to understand its composition and the formula to calculate the average returns on the fund (or the yield of it). But the authors of the article go beyond this – they actually run a regression to see if the various fees paid to the mangers have an impact on the performance. Guess what – yes they have an effect and it is quite substantial – for the rest of the details I will just let you read the article itself.
Yet hedging is just one of the 41 chapters focuses. I enjoyed a lot the last chapter, called “Global Investment Performance Standards”, which try to lay down the CFA’s approach on how to measure the performance of various investment vehicles in various environments. Although a bit wordy for my taste, they describe accurately the efforts of this praised and cursed profession to standardize its approach on its most important issue – “show me the money”. Despite the simple accounting perspective (which in fact it is not so simple if you only refer to the International Financial Standards related to financial instruments) the standard manages to underline the complexity of measuring performance in various contexts. I would say that this chapter from “Investment Performance Measurement – Evaluating and Presenting Results” is just a starting point of reflection – so many variables are at stake, that at the end of the day I guess that CFA will take some more 5 years or so to arrive at a definitive agreement on how to measure it.

Appendix – summary of the book

ntroduction (Philip Lawton, CFA, CIPM, and Todd Jankowski, CFA).
PART I: OVERVIEW OF PERFORMANCE EVALUATION.
CHAPTER 1 Evaluating Portfolio Performance (Jeffery V. Bailey, CFA, Thomas M. Richards, CFA, and David E. Tierney).
Reprinted from Managing Investment Portfolios: A Dynamic Process, 3rd Edition (John Wiley & Sons, 2007):717–780.
PART II: PERFORMANCE MEASUREMENT.
CHAPTER 2 Benchmarks and Investment Management (Laurence B. Siegel).
Reprinted from the Research Foundation of CFA Institute (2003).
CHAPTER 3 The Importance of Index Selection (Christopher G. Luck, CFA).
Reprinted from AIMR Conference Proceedings: Benchmarks and Attribution Analysis(June 2001):4–12.
CHAPTER 4 After-Tax Performance Evaluation (James M. Poterba).
Reprinted from AIMR Conference Proceedings: Investment Counseling for Private Clients II (August 2000):58–67.
CHAPTER 5 Taxable Benchmarks: The Complexity Increases (Lee N. Price, CFA).
Reprinted from AIMR Conference Proceedings: Investment Counseling for Private Clients III (August 2001):54–64.
CHAPTER 6 Overcoming Cap-Weighted Bond Benchmark Deficiencies (William L. Nemerever, CFA).
Reprinted from CFA Institute Conference Proceedings Quarterly (December 2007):55–66.
CHAPTER 7 Yield Bogeys (Brent Ambrose and Arthur Warga).
Reprinted from Financial Analysts Journal (September/October 1996):63–68.
CHAPTER 8 Jumping on the Benchmark Bandwagon: Benchmark Methodologies Are the Subject of Vigorous Debate (Crystal Detamore-Rodman).
Reprinted from CFA Magazine (January/February 2004):54–55.
PART III: PERFORMANCE ATTRIBUTION.
CHAPTER 9 Determinants of Portfolio Performance (Gary P. Brinson, L. Randolph Hood, CFA, and Gilbert L. Beebower).
Reprinted from Financial Analysts Journal (July/August 1986):39–44.
CHAPTER 10 Determinants of Portfolio Performance II: An Update (Gary P. Brinson, Brian D. Singer, CFA, and Gilbert L. Beebower).
Reprinted from Financial Analysts Journal (May/June 1991):40–48.
CHAPTER 11 Determinants of Portfolio Performance—20 Years Later (L. Randolph Hood, CFA).
Reprinted from Financial Analysts Journal (September/October 2005):6–8.
CHAPTER 12 Equity Portfolio Characteristics in Performance Analysis (Stephen C. Gaudette, CFA, and Philip Lawton, CFA, CIPM).
Reprinted from CFA Institute (2007).
CHAPTER 13 Mutual Fund Performance: Does Fund Size Matter (Daniel C. Indro, Christine X. Jiang, Michael Y. Hu, and Wayne Y. Lee)?
Reprinted from the Financial Analysts Journal (May/June 1999):74–87.
CHAPTER 14 Multiperiod Arithmetic Attribution (José Menchero, CFA).
Reprinted from the Financial Analysts Journal ( July/August 2004):76–91.
CHAPTER 15 Optimized Geometric Attribution (José Menchero, CFA).
Reprinted from the Financial Analysts Journal ( July/August 2005):60–69.
CHAPTER 16 Custom Factor Attribution (José Menchero, CFA, and Vijay Poduri, CFA).
Reprinted from the Financial Analysts Journal (March/April 2008):81–92.
CHAPTER 17 Return, Risk, and Performance Attribution (Kevin Terhaar, CFA).
Reprinted from AIMR Conference Proceedings: Benchmarks and Attribution Analysis (June 2001):21–27.
CHAPTER 18 Global Asset Management and Performance Attribution (Denis S. Karnosky and Brian D. Singer, CFA).
Reprinted from The Research Foundation of CFA Institute (February 1994).
CHAPTER 19 Currency Overlay in Performance Evaluation (Cornelia Paape).
Reprinted from Financial Analysts Journal (March/April 2003):55–68.
PART IV: PERFORMANCE APPRAISAL.
CHAPTER 20 On the Performance of Hedge Funds (Bing Liang).
Reprinted from the Financial Analysts Journal (July/August 1999):72–85.
CHAPTER 21 Funds of Hedge Funds: Performance and Persistence (Stan Beckers).
Reprinted from CFA Institute Conference Proceedings Quarterly (June 2007):25–33.
CHAPTER 22 Hedge Fund Due Diligence: Putting Together the Pieces of the Mosaic Helps Reveal Operational Risks (Cynthia Harrington, CFA).
Reprinted from CFA Magazine (May/June 2003):54–55.
CHAPTER 23 Putting Risk Measurement in Context: Why One Size Does Not Fit All (Cynthia Harrington, CFA).
Reprinted from CFA Magazine (March/April 2004):44–45.
CHAPTER 24 Conditional Performance Evaluation, Revisited (Wayne E. Ferson and Meijun Qian).
Reprinted from the Research Foundation of CFA Institute (September 2004).
CHAPTER 25 Distinguishing True Alpha from Beta (Laurence B. Siegel).
Reprinted from CFA Institute Conference Proceedings: Challenges and Innovation in Hedge Fund Management ( July 2004):20–29.
CHAPTER 26 A Portfolio Performance Index (Michael Stutzer).
Reprinted from the Financial Analysts Journal (May/June 2000):52–61.
CHAPTER 27 Approximating the Confi dence Intervals for Sharpe Style Weights (Angelo Lobosco and Dan DiBartolomeo).
Reprinted from Financial Analysts Journal ( July/August 1997):80–85.
CHAPTER 28 The Statistics of Sharpe Ratios (Andrew W. Lo).
Reprinted from the Financial Analysts Journal (July/August 2002):36–52.
CHAPTER 29 Risk-Adjusted Performance: The Correlation Correction (Arun S. Muralidhar).
Reprinted with updates from the Financial Analysts Journal (September/October 2000):63–71.
CHAPTER 30 Index Changes and Losses to Index Fund Investors (Honghui Chen, Gregory Noronha, CFA, and Vijay Singal, CFA).
Reprinted from the Financial Analysts Journal (July/August 2006):31–47.
CHAPTER 31 Information Ratios and Batting Averages (Neil Constable and Jeremy Armitage, CFA).
Reprinted from the Financial Analysts Journal (May/June 2006):24–31.
CHAPTER 32 The Information Ratio (Thomas H. Goodwin).
Reprinted from the Financial Analysts Journal (July/August 1998):34–43.
CHAPTER 33 Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance (Roger G. Ibbotson and Paul D. Kaplan)?
Reprinted from the Financial Analysts Journal (January/February 2000):26–33.
CHAPTER 34 Fund Management Changes and Equity Style Shifts (John G. Gallo and Larry J. Lockwood).
Reprinted from Financial Analysts Journal (September/October 1999):44–52.
CHAPTER 35 Managing Performance: Monitoring and Transitioning Managers (Louisa Wright Sellers).
Reprinted from AIMR Conference Proceedings: Investment Counseling for Private Clients IV (August 2002):32–39.
CHAPTER 36 Does the Emperor Wear Clothes or Not? The Final Word (or Almost) on the Parable of Investment Management (Philip Halpern, Nancy Calkins, and Tom Ruggels).
Reprinted from Financial Analysts Journal ( July/August 1996):9–15.
CHAPTER 37 Does Historical Performance Predict Future Performance (Ronald N. Kahn and Andrew Rudd)?
Reprinted from Financial Analysts Journal (November/December 1995):43–52.
CHAPTER 38 Evaluating Fund Performance in a Dynamic Market (Wayne E. Ferson and Vincent A. Warther).
Reprinted from Financial Analysts Journal (November/December 1996):20–28.
CHAPTER 39 Investment Performance Appraisal (John P. Meier, CFA).
Reprinted from CFA Institute (2008).
CHAPTER 40 Thinking Outside the Box: Risk Management Firms Put a Creative Spin on Coupling Theory with Practice (Susan Trammell, CFA).
Reprinted from CFA Magazine (March/April 2004):32–35.
PART V: GLOBAL INVESTMENT PERFORMANCE STANDARDS.
CHAPTER 41 Global Investment Performance Standards (Philip Lawton, CFA, CIPM, and W. Bruce Remington, CFA).
Reprinted from Managing Investment Portfolios: A Dynamic Process, 3 ed. (John Wiley & Sons, 2007):783–855.
APPENDIX A Global Investment Performance Standards (GIPS®).
Reprinted from the CFA Institute Centre for Financial Market Integrity(February 2005).

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