Can someone explain why security selection return is weighted by the benchmark sector weight for micro performance attribution, but is weighted by the portfolio sector weight for global attribution? Thanks in advance!
that confused me too…I am simply going to memorize the formula. We run a global fund and I have performed a little of attbn studies, I honestly don’t get it!
If you are looking at the LOS, it seems unlikely there will be any calculations to be peformed here
I would disagree - the 6 formulas for attributing returns (micro and global combined) are gaurentteed to show up somewhere. Not necessarily testing all six formula’s but you can bet one or more will be on there for marks. Those formula’s represent free marks - just memorize them approporiately.
I agree, that’s almost a sure shot question - JUST MEMORIZE. Let me try: Micro Attbn: s s s Rv = ‡” (Wj, p - Wj, b)* (Rj,b- Rb) + ‡” (Wj, p - Wj, b)* (Rj,p- Rj,b) + ‡” Wj, p* (Rj,b- Rj,b) j=1 j=1 j=1 Allocation Effect Allocation/Selection Effect Selection Effect Global Attribution: s s s Rv = ‡” (Wj, p*Cj,p - Wj, b*Cj,b) + ‡” (Wj, p - Wj, b)* Rj,b,f + ‡” Wj, p* (R,j,p,f- Rj,b,f) j=1 j=1 j=1 Currency Effect Market Allocation Sector Selection Effect Cj = e(1 + CGj + CFj)
P 24 of the Schweser books…where in LOS K or LOS L does it say “calculate”? Wait let me answer that for you…it doesn’t Global Attribution is different…the LOS (44) specifically says calculate, but if you must memorize the Micro components, have at it Pure Sector: (Port w j - BM w j)(BM Ret j - Port BM Ret) Within Sector: (BM w sector) (Port Ret j - BM Ret j)
pingdanny Wrote: ------------------------------------------------------- > If you are looking at the LOS, it seems unlikely > there will be any calculations to be peformed here You are right, the LOS may not ask to do any calculation, knowing (well not really) CFAI, they can present the questions in such way that “calculationg” still become necessary.
LynDel, The two weightings just reflect different schemes of attribution, nothing fundamental. In each case we are going down a number of attribution steps in a serial fashion.
Some pure algebras working on definitions of both attributions lead to the differences Lyndel pointed out. And both equations are 100% correct. # micro attribution (value-added return): measures a local manager’s skill portfolio return - manager’s bm return = w[p,j] * (R[p,j] - R[B]) - w[b,j] * (R[B,j] - R[B]) ---- starting from here, one can easily get to the formula of page 31. # global attribution (excess return): measures a global manager’s skill portfolio’s domestic return - bm’s domestic return = w[p,j] * (R[p,j,f] + C[p,j]) - w[b,j] * (R[b,j,f] + C[b,j]) (in essence, domestic return = local return + currency return) — starting from here, one can again easily get to the formula of page 69. It’s the math rather than any financials that creates the difference at the security selection term. In addition, the two attributions carry fairly distinct meanings. it may not be fair to draw the parallels between the two.
The keyword ‘demonstrate’ in the LOS entails being able to calculate the attribution results, and given how instrumental this portion is to the entire Portfolio Analysis section, it will likely become part of an essay question. Speculate all you like, but I’m not walking into the test without knowing the topic cold.
LynDel Wrote: ------------------------------------------------------- > Can someone explain why security selection return > is weighted by the benchmark sector weight for > micro performance attribution, but is weighted by > the portfolio sector weight for global > attribution? > Thanks in advance! Lyndel, They are the same just a different representation. In the micro-attribution section, they spli the security selection return to : Security Selection + Security and Sector Interaction In the global attribution section, they bundel both parts under one item called security selection. Assume we have only one security for simplicity: Global attribution security selection: Wp (Rp-Rb) Micro attribution (Security + Interaction): Wb(Rp-Rb) + (Wp-Wb)(Rp-Rb) = Wp(Rp-Rb) You actually don’t need to memorize any of this if you understand the graph in the CFAI material with two rectangles and the difference between them. Hope this helps.