A bit confused on something …why is the market allocation in period 1 not given by the (difference between benchmark and portfolio currency weights) * ( Benchmark currency Returns) so (.60-.50)*20% + (.4-.5)*0% instead the book has (difference between benchmark and portfolio currency weights) * (difference between benchmark and portfolio currency returns) (.6-.5)(20%-10%) + (.4-.5)(0%-10%) am i missing something here? esp in light of how example 4 is done
anyone?
They’re just using the formula: (Weight in Portfolio - Weight in Benchmark) * Return Benchmark See page 213, at the top, for a breakdown of all the component contributions.
pimpineasy Wrote: ------------------------------------------------------- > A bit confused on something …why is > the market allocation in period 1 not given by the > > > (difference between benchmark and portfolio > currency weights) * ( Benchmark currency Returns) > so (.60-.50)*20% + (.4-.5)*0% > > instead the book has > > (difference between benchmark and portfolio > currency weights) * (difference between benchmark > and portfolio currency returns) > > (.6-.5)(20%-10%) + (.4-.5)(0%-10%) > > > am i missing something here? esp in light of how > example 4 is done Both formula are correct given what you are looking for. The first formula will give you the contribution of the return generated by that decision to the total return of the portfolio. The formula that was used will give you the contribution of the return generated by that decision over the return of the benchmark (i.e. contribution to excess return).
yes yes after alomst stabbing my brain with my mechanical pencil i see that both formulas are correct …they could have explained it better though…a lot of the material in the book while comprehensive could be explained better…thanks all