Trading Effect

AAA

DEFINITION of 'Trading Effect'

A measure of performance that examines the difference in returns between a bond portfolio and a chosen benchmark. This difference occurs as a result of short-term alterations in the portfolio's composition. The trading effect reveals whether trading activities benefited or hindered a portfolio's return.

INVESTOPEDIA EXPLAINS 'Trading Effect'

The trading effect serves as a way for investors to quantify a portfolio manager's performance. It answers the simple question of whether the manager (or investor) added value by making adjustments to the portfolio. If the benchmark, such as the Dow Jones Corporate Bond Index, outperforms the actively managed bond portfolio, then the manager subtracted value for the investor. If the bond portfolio earns more than the bond index, then the changes in portfolio composition have increased investor value, indicating a good management strategy.

RELATED TERMS
  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. Benchmark Bond

    A bond that provides a standard against which the performance ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  4. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  5. Manager Universe (Benchmark)

    A peer group of investment managers who have the same investment ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...
Related Articles
  1. Investing Basics

    How To Create A Modern Fixed-Income Portfolio

    Exposure to different asset classes is required to generate income, reduce risk and beat inflation. Find out how bonds can help.
  2. Mutual Funds & ETFs

    Will A New Fund Manager Cost You?

    Learn how a change in leadership could mean more taxes for you.
  3. Mutual Funds & ETFs

    Evaluating Bond Funds: Keeping It Simple

    Discover some of the key factors for determining a fund's risk-return profile.
  4. Mutual Funds & ETFs

    Should You Follow Your Fund Manager?

    Learn how to tell if a fund in flux is still a suitable investment.
  5. Professionals

    Preparing For A Career As A Portfolio Manager

    Find out what it takes to win a spot in one of the most coveted financial careers.
  6. Mutual Funds & ETFs

    Your Mutual Fund: It's Riskier Than You Think

    Fund managers often take on more risk than they should, putting business ahead of fund holders' interests.
  7. Delivery duty paid (DDP) is a shipping term.
    Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  8. Investing Basics

    Enterprise Resource Planning System: A How To

    An ERP system won’t transform poor management into good management, but the real-time business analytics can help make good management even better.
  9. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  10. Investing Basics

    How To Calculate Goodwill

    Goodwill is an intangible, but it is still possible to effectively calculate or estimate goodwill for a company.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center