Idiosyncratic Return and Variance Attribution: Observations from the Australian Listed Property Sec

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It is testament to the simplicity and applicability of orthodox variance attribution that it is so well-grounded in the performance research and practice. However, contained within the familiar asset allocation calculation lurks an implicit but ill-recognized assumption around diversity, and, set against the backdrop of the Australian Listed Property industry, this article demonstrates how, in extremely concentrated asset groupings, large idiosyncratic returns can easily and significantly distort attribution results.

Author: Andrew Kophamel, CFA, StateStreet

It is testament to the simplicity and applicability of orthodox variance attribution that it is so well-grounded in the performance research and practice. However, contained within the familiar asset allocation calculation lurks an implicit but ill-recognized assumption around diversity, and, set against the backdrop of the Australian Listed Property industry, this article demonstrates how, in extremely concentrated asset groupings, large idiosyncratic returns can easily and significantly distort attribution results.

 

Idiosyncratic Return and Variance Attribution: Observations from the Australian Listed Property Sec.

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