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A central tenet in the theory and application of performance attribution is that the attribution model must reflect the investment decision-making process. In the sector-based model of Brinson-Fachler (1985), the Active Return is decomposed into an Allocation Effect and a Selection Effect.
Author: Jose Menchero Ph.D.
Description
A central tenet in the theory and application of performance attribution is that the attribution model must reflect the investment decision-making process. In the sector-based model of Brinson-Fachler (1985), the Active Return is decomposed into an Allocation Effect and a Selection Effect. The Allocation Effect, also known as Sector Selection, measures the value added (or subtracted) through over-weighting or under-weighting individual sectors. The Selection Effect, also known as Issue Selection, measures the value added (or subtracted) by weighting securities within a sector differently than the benchmark.
Nested Performance Attribution
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