Errata - Formula for "Allocation effect" Book 6 - Performance Evaluation - looks incorrect
The formula for Allocation effect on page 182 Book 6 looks incorrect. Its given as Ai = (wp - wb) Bi
wp = weight of the sector/security on the portfolio
wb = weight of the sector/security on the benchmark
Bi = return of the sector/security on the benchmark
I think this formula should be (wp - wb) (Bi - B)
where B = return of the benchmark
In fact, on page 182 they use the first formula while on page 197 (same chapter) the allocation effect has been computed using the 2nd formula mentioned above.
Any one’s seen this.
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