Portfolio Performance and Attribution Analysis

Topics: Investment, Modern portfolio theory, Stock market Pages: 11 (2823 words) Published: July 23, 2011
Portfolio Performance Evaluation and Attribution Analysis

Date of Submission
22nd June, 2011

Portfolio Performance Evaluation and Attribution Analysis

Submitted to:
Mahmood Osman Imam, Ph.D.
Department of Finance
University of Dhaka

Submitted by:
Sakib Ahmed Chowdhury
B.B.A. 13th Batch
Section: A, ID: 13-161
Group # 9
Department of Finance
University of Dhaka

22nd June, 2011

Dr. Mahmood Osman Imam
Department of Finance
Faculty of Business Studies
University of Dhaka

With due respect, I, a student of B.B.A. Program (13th Batch) under Department of Finance, University of Dhaka, submit the report entitled “Portfolio Performance Evaluation and Attribution Analysis” that you have assigned us as the project work for the course Security Pricing and Portfolio Theory in the running semester. I thank you, sir, for this assignment which has enriched my knowledge of this topic.


Sakib Ahmed Chowdhury

Section: A, ID: 13-161
B.B.A. 13th Batch
Department of Finance
Faculty of Business Studies
University of Dhaka

Table of Contents
Table of Contentsiv
Portfolio Construction2
Selection of Stocks2
Return Series2
Individual Stock Returns2
Market Return2
Benchmark Returns for Individual Sectors3
Optimization of Weights3
Portfolio Performance Measurement4
Sharpe Portfolio Performance Measure4
Treynor Portfolio Performance Measure4
Jensen Portfolio Performance Measure4
Fama Decomposition5
Components of Overall Performance5
Investor’s Risk5
Manager’s Risk6
Net Selectivity6
Performance Attribution Analysis8
Benchmark Portfolio8
Allocation Effect8
Selection Effect9

Portfolio performance evaluation and attribution analysis help the analysts to identify their point of efficiency and improve. The focus of this project is to continue on the last project’s work and of portfolio performance evaluation and attribution analysis. Methodology

The project involves analysis based on some listed companies from different industries. The data range was 2005 to 2009 and is collected from Dhaka Stock Exchange Data Library. Microsoft Excel™ software has been used to conduct some critical programming work. Interpretation and justification are included as well. Limitation

The numbers of stocks have been limited to ten. Therefore, this model needs to be expanded if it to be applied in real world. Another drawback is that there were no separate calculated indexes for stocks of different industries.

Portfolio Construction
Stock Selection
The stock selection criteria have been previously presented in the prequel project titled “Portfolio Construction and Optimization”. Focusing on the purpose of the current project, the detailed description is irrelevant to include here. Therefore, from this point forward, the method of measuring performance of previously constructed portfolio (or any other portfolio) is illustrated. The selected stocks are as followings:

Industry| Company|
Bank| AB Bank Limited|
| Islami Bank Limited|
| Pubali Bank Limited|
NBFI| IDLC Finance Limited|
Fuel & Power| Padma Oil|
| Summit Power|
Service & Real Estate| Samorita Hospital|
| Eastern Housing|
Pharmaceuticals| Renata Limited|
Cement| Heidelberg Cement|
Return Series
Individual Stock Returns
The average returns on stock have been calculated on the basis of capital gain yield and dividend yield. It is worth mentioning that the capital gain yield was calculated based on the adjusted stock prices where these adjustments were made to normalize the effect stock dividend as bonus share. Stock price adjustments were also made when there were any stock splits (or reverse splits). Market Return

DSE General Index has been considered as the proxy...
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