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Practical Risk-Adjusted Performance Measurement
CARL R. BACON
Second Edition
This second edition first published 2022
Copyright © 2022 John Wiley & Sons, Ltd
Edition History John Wiley & Sons Ltd (1e, 2013)
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Library of Congress Cataloging-in-Publication Data
Names: Bacon, Carl R., author.
Title: Practical risk-adjusted performance measurement / Carl R. Bacon.
Description: Second edition. | Hoboken, NJ : Wiley, 2022. | Series: Wiley finance series | Includes bibliographical references and index.
Identifiers: LCCN 2021028308 (print) | LCCN 2021028309 (ebook) | ISBN 9781119838845 (cloth) | ISBN 9781119838869 (adobe pdf) | ISBN 9781119838876 (epub) | ISBN 9781119838883 (obook)
Subjects: LCSH: Financial risk management. | Performance standards. | Risk management.
Classification: LCC HD61 .B33 2022 (print) | LCC HD61 (ebook) | DDC 658.15/5—dc23
LC record available at https://lccn.loc.gov/2021028308
LC ebook record available at https://lccn.loc.gov/2021028309
Cover Image: © oxygen/Moment
Cover Design: Wiley
This book is dedicated to the staff of Frederick Gent School,
South Normanton, Derbyshire. They set me on my way.
Preface
“Beauty is in the eye of the beholder.”
Margaret Wolfe Hungerford (1855–1897), Molly Bawn 1878
There are many books and articles, perhaps hundreds, written on the subject of portfolio risk, but for the most part they focus on ex-ante risk, tend to be highly academic with authors seemingly in a competition to present the material in as complex a language as possible, prone to mathiness1 and are typically devoid of worked examples. The first edition of this book attempted to fill the gap between practice and theory, written for risk and performance measurement practitioners from a buy side, asset management perspective, focusing on quantitative ex-post measures rather than the qualitative aspects of risk. The first edition provided the material I would have wanted to read, so why a second edition? Well, I've received many useful comments, suggestions and yes, accepted a few corrections or met the need for further clarification. I thank everyone who has contributed, even the innocent question in a training session causing my mind to wander, eventually generating that spark that leads to an epiphany. I've taken the opportunity to add a few new measures, provide additional explanations where the original clearly was not sufficient, corrected a few annoying errors and added six entirely new chapters.
Risk has an undeserved reputation within asset management for being an overly complex, mathematical subject. The purpose of this edition is to simplify the subject and demonstrate with many practical examples that risk is perfectly straightforward and not as complicated as it might seem.
In