Interest Rate Effects

[ayousaf]

Why are interest rate effects ignored for performance evaluation? Surely, a higher level of unexpected interest rates would signal poorer management?
Thanks,

 

[sunman9]

might wanna elaborate on the question.

 

[cokemicho]

ayousaf wrote:
Why are interest rate effects ignored for performance evaluation? Surely, a higher level of unexpected interest rates would signal poorer management?
Thanks,

Im sorry, i dont get your question, in the performance evaluation of Fixed Income portfolios there is a bucket of interest rate management effect.

 

[ayousaf]

Sorry about that! Basically, in the fixed income performance evaluation (book 5) there’s a table on pg. 166 which lists all the components of return. The top two components are interest rate effect (expected) and interest rate effect (unexpected) - why are these not included in the analysis of active management returns (as I would assume forecasting ability would be crucuial)?

 

[cokemicho]

It is because you’re backtesting your expected interest rates movement.

 

[ayousaf]

Then it should be part of the evaluation (we can assess how good the manager expectations were)