GIPS Dispersion/Standard Deviation requirements only, understand, additional, included

marsilni

This stuff is not clicking for me.  If I understand correctly, an internal dispersion measure must be shown of only portfolio’s that were included in composite the entire period (you get your choice of high low, interquartile, SD of equal weighted returns, asset weighted SD of annual returns).  Next:
5.A.2 (Schweser Book 5 page 208) requires:
a. three year annualized ex post standard deviation using monthly returns
b. an additional 3-year ex post risk measure if mgmt feels standard deviation is innapropriate
So what are a) and b) above?  Are they external measures?  Or are they the internal measures I mentioned above (in other words, does a. represent the internal dispresion using SD of equal weighted returns or asset weighted returns and b. represent the internal dispersion using high low or interquartile returns)?
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Further, in the problem on page 225, note 6 says “dispersion is measured as the standard deviation of monthly composite returns”, which is said to be wrong because it is an external measure.  How do you know it is external and what is the difference?

atate2007

i think you are right…
external : composite dispersion around average composite return for the annual period over all years. ( a bit like timeseries coz we are looking across time)
internal : portfolio dispersion around average composite return for the annual period (a bit like cross section…coz we are looking across portfolios over a particular year)

Fdez

Thanks.  So to answer the above:
What do 5.A.2 refer to when they talk about ex post measures?
Why is note 6 in the schweser problem that says dispersion is measured as  the standard deviation of monthly composite returns not an internal measure?  Because you have to find the return of each portfolio individually, rather than the composite return?

manasib

The composite internal dispersion is a measure of the variability of portfolio-level returns for only those portfolios that are included in the composite for the full year around the composite return. First, the firm must identify which portfolios were in the composite for the full year. Second, the firm must calculate the annual return for each of the portfolios that were included in the composite for the full year. The internal dispersion measure is then calculated using these portfolio-level annual returns. The specific measure of dispersion presented is a required disclosure. If the firm has less than five portfolios in a composite, a measure of dispersion is not required.