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Investment Performance AttributionIf you don't know where to start when learning about attribution, simply work your way through the following list: The chapter Arithmetic Performance Attribution explains the first principles of sector attribution, and shows (using a worked example) how many useful pieces of knowledge about sector attribution dovetail in with the first principles. The Attribution Basics page explains some basic principles that are essential for developing a strong understanding of performance attribution. The Sector Attribution page explains the most widely used performance attribution model: sector attribution, otherwise known as "Brinson attribution". The Multiperiod Attribution page contains two very informative journal articles and an example spreadsheet. One of the articles (exclusive to this web site), provides a detailed response to arguments mounted by Jose Menchero in Financial Analysts Journal. The debate centers on how best to calculate attributes over multiple periods using the sector attribution model. The Interaction page discusses one aspect of the sector attribution model that is disliked by many people: the interaction attribute. We explain what the interaction term means and how it arises. We also show some ways to "get rid of" the interaction attribute, and the consequences that follow when you do. The Stock Level Attribution page describes a stock-level attribution model that is perfect for portfolio managers who make "bottom-up" stock picks. This model has no asset allocation term, and no interaction term. Mainly, what it measures is stock selection (relative to the overall benchmark). However, it also includes a transaction costs term, which can be useful in helping to understand the impact of transaction costs on portfolio performance. The Multicurrency Attribution page is not yet complete, but it contains quite a lot of material about the insights provided by Karnosky and Singer's approach to this topic. The multicurrency approach provided by Karnosky and Singer can be adapted for use with all of the other attribution techniques described on this web site. |
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