Cracked....the Value Added Return

We all know what the breakdown of the micro-attribution value added return formula is, the following order is based on the schweser formula (Wp,j-Wb,j)(Rp,j-Rb)+(Wp,j-Wb,j)(Rp,j-Rb,j)+Wb,j(Rp,j-Rb,j) ranking as pure sector allocation, allocation/selection interaction and within sector allocation, in that order. If you can always have it at the back of your mind to always put the formula in this order, and allow the weight to always come first, you can create the following rhyme from the pjbj thingy : pjbjpjb/pjbjpjbj/bjpjbj thing of it as counting 1234123/12341234/121234 Hope this can help crack this particular formula…

I don’t have my books with me at work, but isn’t pure sector (Wp,j - Wb,j)(Rb,j - Rb)? That’s Rb,j - Rb, not Rp,j - Rb.

higgmond Wrote: ------------------------------------------------------- > I don’t have my books with me at work, but isn’t > pure sector (Wp,j - Wb,j)(Rb,j - Rb)? That’s Rb,j > - Rb, not Rp,j - Rb. I think higgmond is correct, but I still need to review this section. Don’t know why it won’t stick.

higgmond Wrote: ------------------------------------------------------- > I don’t have my books with me at work, but isn’t > pure sector (Wp,j - Wb,j)(Rb,j - Rb)? That’s Rb,j > - Rb, not Rp,j - Rb. higgmond is correct

dude. that will take a lot time to decode your 1234 back into the formula. just try to understand the rationale behind it. i personally think macro, micro and global attributions are easiest area of Level 3 exam.

attribution didn’t start sticking for me until i stopped trying to memorize and started looking at it conceptually for pure sector, you are overweighting or underweighting sectors, so the first part should be intuitive. for the second part, you are measured on your ability to pick how much to allocate to the sector relative to the portfolio benchmark. I think for everyone they will need to word it in a way that makes sense for them, but if you put attribution into logical sentences, the formulas should just present themselves to you. also, putting the formulas into sentences has the added benefit of giving you automatic verbiage to spew out for the marks you get by explaining what the formulas mean. i think the first schweser exam had this on it

The way I think about this eqn is to remember the corners… the first corner (pure sector) has portfolio and benchmark WEIGHTS with an Rb return the other corner (within sector) has just the benchmark weight. the middle is the “easy” part where all sector weights and sector returns are taken into consideration

heheh…you wrote “bj”

If you memorize the middle portion you’ll note that the Return portion of it is the same as the 3rd portion and the weight portion is the same for the 1st portion. If you remember that you’re most of the way there.

taketwo Wrote: ------------------------------------------------------- > attribution didn’t start sticking for me until i > stopped trying to memorize and started looking at > it conceptually > > for pure sector, you are overweighting or > underweighting sectors, so the first part should > be intuitive. for the second part, you are > measured on your ability to pick how much to > allocate to the sector relative to the portfolio > benchmark. I think for everyone they will need to > word it in a way that makes sense for them, but if > you put attribution into logical sentences, the > formulas should just present themselves to you. > also, putting the formulas into sentences has the > added benefit of giving you automatic verbiage to > spew out for the marks you get by explaining what > the formulas mean. i think the first schweser exam > had this on it Agreed. When you think about it conceptually, the formulas come easy.

Thanks, guys…

taketwo Wrote: ------------------------------------------------------- > attribution didn’t start sticking for me until i > stopped trying to memorize and started looking at > it conceptually > > for pure sector, you are overweighting or > underweighting sectors, so the first part should > be intuitive. for the second part, you are > measured on your ability to pick how much to > allocate to the sector relative to the portfolio > benchmark. I think for everyone they will need to > word it in a way that makes sense for them, but if > you put attribution into logical sentences, the > formulas should just present themselves to you. > also, putting the formulas into sentences has the > added benefit of giving you automatic verbiage to > spew out for the marks you get by explaining what > the formulas mean. i think the first schweser exam > had this on it agreed. i had a hell of a time with global performance attribution until i stopped trying to memorize it/