At last week’s North America Performance Measurement, Attribution & Risk (PMAR) conference, I provided an update on research I’m doing on holdings vs. transaction based attribution. Many investment professionals are aware that the holdings based approach typically results in residuals (i.e., unexplained differences between the sum of the attribution effects and the excess return). What isn’t widely known is the mis-assignment of attribution effects, which can result in erroneous and misleading reports.
Yesterday we were hosting our immediate family for a picnic/pool party. As I walked outside to take bags of ice to our cooler, I tripped and fell. My wife responded by trying to come to my aid, only to stumble herself. And while I suffered no injury at all, she had a severe sprain. The cause of her injury? My falling, of course, for she wouldn’t have fallen had I not done so myself.
Knowing where the blame or credit goes is important. What we don’t need are reports that provide the wrong assessments.