Risk-Adjusted Performance Attribution-

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Performance attribution and risk-adjusted performance measures have attracted considerable research over the last few years and, yet, attempts to link the two together are conspicuous by their absence.  What is more, the firm foundation that has been built in both these areas, coupled with increased sophistication of users of performance information, both suggest that this is an area that deserves our attention.

Author: Jose Menchero, Ph.D., CFA, MSCI Barra

Performance attribution and risk-adjusted performance measures have attracted considerable research over the last few years and, yet, attempts to link the two together are conspicuous by their absence.  What is more, the firm foundation that has been built in both these areas, coupled with increased sophistication of users of performance information, both suggest that this is an area that deserves our attention.  In attempting to move industry debate toward this area, this paper develops one possible approach to this problem and tests it in a number of simulated investment environments.  Results from these tests are encouraging and suggest that further effort in a number of related areas is justified.

 

Risk-Adjusted Performance Attribution

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