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We have investigated the behavior of the Brinson model when used for evaluating the outperformance over multiple periods. We have shown that the allocation effect calculated over multiple periods can capture, next to the added value of allocation decisions, an effect that arises due to the drift in weights introduced by selection decisions. By an extension to the Brinson method, this effect can be isolated, resulting in a more intuitive attribution analysis. Furthermore, we have evaluated different smoothing algorithms.
Bas Leerink, CIPM, Ortec Finance and
Gerard C.M. van Breukelen, CIPM, Robeco
Description
We have investigated the behavior of the Brinson model when used for evaluating the outperformance over multiple periods. We have shown that the allocation effect calculated over multiple periods can capture, next to the added value of allocation decisions, an effect that arises due to the drift in weights introduced by selection decisions. By an extension to the Brinson method, this effect can be isolated, resulting in a more intuitive attribution analysis. Furthermore, we have evaluated different smoothing algorithms.
Multi-Period Performance Attribution: Framework for an Allocation Effect Taking Active Weight Drift into Account
Bas Leerink, CIPM, Ortec Finance and
Gerard C.M. van Breukelen, CIPM, Robeco
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