GIGAMIND

Folder:
115 CFA
File:
115.010.40.10 Reading 4 - Why were the GIPS Standards Created

Why were the GIPS Standards Created?

a. explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards;

Why were the GIPS Standards created?
In the past, making meaningful comparisons on the basis of accurate investment performance data was difficult because of some misleading practices.

Why does GIPS specifically want to measure investment performance for cross-border and different countries?
A common problem when reporting investment performance across different borders is that some countries have performance measurements and disclosures that are tailored specifically to them but that differ greatly from those in other countries. Some countries do not even have any standardized approaches for investment firms to follow to ensure fair representation and full disclosure of performance information.

What are three common misleading practices for investment performance measurement and reporting?
1. Representative accounts - Only the results of the best portfolio or securities are presented.
2. Survivorship bias - Only reporting funds that are still active and performing well, not those that did not perform well and no longer exist.
3. Varying time periods - Only the results for profitable time periods are reflected.


Source:
  • CFA