Share Class Hedging: Performance Attribution

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Amid increasing cross-border investment flows and rising levels of investment in funds denominated in currencies other than those of the investor, leading currency managers are creating new quantitative tools and systems to render hedged performance more transparent.  To address investment complexity and raise investor “comfort levels,”  hedging attribution must be mathematically precise, intuitive and informative.

Authors: Jordan Alexiev, CFA, Jay Moore, CFA, and David Turkington, CFA

Share Class Hedging: Performance Attribution

Amid increasing cross-border investment flows and rising levels of investment in funds denominated in currencies other than those of the investor, leading currency managers are creating new quantitative tools and systems to render hedged performance more transparent.  To address investment complexity and raise investor "comfort levels,"  hedging attribution must be mathematically precise, intuitive and informative.  We first present the importance of investment managers to meet the growing demands of global investors through mulitiple currency hedged share classes.  We then highlight the challenges of producing the comprehensive performance analytics required to ensure objectives are satisfied and performane is transparent.  Finally, we present a mathematically precise set of performance decomposition calculatios to explain all sources of peformance imperfection across hedge share classes.

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