Equity Attribution Smoothing Method for Non-Rebalanced Periods

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Equity Attribution Smoothing Method for Non-Rebalanced Periods
Tianci (Austin) Dai, CFA, CIPM, SS&C

Brinson-Fachler attribution provides a way to calculate attribution effects to explain the investment process’ value added. It implies that there are allocation and selection decisions made by the investment management process. For non-rebalanced periods, it will distort the cumulative attribution effects across subperiods when the calculating periodicity is shorter than the rebalancing periodicity.

Equity Attribution Smoothing Method for Non-Rebalanced Periods
Tianci (Austin) Dai, CFA, CIPM, SS&C

Brinson-Fachler attribution provides a way to calculate attribution effects to explain the investment process’ value added. It implies that there are allocation and selection decisions made by the investment management process. For non-rebalanced periods, it will distort the cumulative attribution effects across subperiods when the calculating periodicity is shorter than the rebalancing periodicity. The Non-Rebalanced Smoothing Method presented in this article can retrospectively adjust the attribution effects in such cases to achieve the same results as a one-period analysis. It is a sector level smoothing method similar to GRAP/Frongello methods as it applies on total level.

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