What’s the best way to remember these damn formulas. They’re so confusing.
I think the Micro is ok. I haven’t tackled the Global Micro yet though… That is a lot more tedious with all the tables and such. I have analytical software that does this for me, come on now.
I have divided the answer into two parts: 1. Do the attribution as if you were only making the investments in the local/foreign currencies. I think there are couple of equations to crunch here. 2. Now, take into account the currency & calculate the 3rd component. As you can tell, I don’t remember the forumulae right now, but from my notes, if you did end-of-chapter problems 1 & 2 from that reading, you should be fine. I guess I need to do that too
Write them down several times until they are automatic. This is kind of a grade school approach but the best I have found.
Please refresh my memory. What reading is this? I want to add it to the long list of things I’ve read twice and yet know nothing about.
did anyone try to memorize these long equations? I can’t imagine a stratight forward plug and chug calculation question on this.
they suck, especially the currency attribution one which I dont understand how they calculate it… I’m reviewing this today I’ll try to post later. Im still reeling from CFAI online #2 exam I just took… ouch
for global attribution: currency: weightP * return domestic - weightB * return B (just memorize it) Market: I remember market = benchmark, therefore the dif in weights * benchmark Security is opposite of benchmark (returnP-returnB) * weightP
Global Performance Attribution j= country j CMS Currency (Notice Currency is the only place you use Domestic Return) (Wj,p*Cj,p)-(Wj,b*Cj,b) Where (Cj,p = Rj,d-R,f) (Cj,b = Rj,d-Rj,f) Market Rj,b,f (Wj,p-Wj,b) Security Wj,p(Rj,p,f-Rj,b,f)
Hey Pimp - i have yet to tackle GLobal but I tried to memorize the Micro - i have been saying the little rhyme and I write out the equation then go to town.,… Try use this little rhyme for Micro Pure sector, Selection, and Within, there is such a spin In the first two, the little weights are the same it’s the returns that the game Little B, Big B, little P little B (3 Bs and a P – Returns are easy you can see) ‘Within’ carries little bench weight and the returns are not that great. Look at the formula in the CFAI readings and just state this above. Try saying it and writing the formula. LITTLE – refers to using the asset level (within the portfolio) where as BIG refers to using the TOTAL for the portfolio. The first two components weightings are the same (Weight of each portfolio asset minus its corresponding benchmark asset (aka little)). It’s the RETURNS that you have to remember are different, PURE bench mark asset return (little B) to TOTAL Benchmark return (BIG B) – If it helps, REMEMBER THAT PURE REMAINS ‘PURE’ WITH “B” and Selection (Return on the Portfolio Asset to the corresponding Benchmark asset return (THEY SELECT SOMETHING DIFFERENT). Within carries little weight (since it is only 1 W – the weight of the bench asset x returns are not so great (little P – little B) (NOT GREAT - SAME AS LITTLE) My description is not so hot - but just read the rhyme and look at the formula…
boston Wrote: ------------------------------------------------------- > for global attribution: > > currency: weightP * return domestic - weightB * > return B (just memorize it) > > Market: I remember market = benchmark, therefore > the dif in weights * benchmark > > > Security is opposite of benchmark > > (returnP-returnB) * weightP This is exactly how I do it too: Market Allocation Effect = (Weight Differences ) x Benchmark Return Security Allocation Effect = (Return Differences ) x Portfolio Weight Just seems easier when you use the terminology “Weight Differences” and “Return Differences”.
I think I got it down now. Am going to write it out from memory each day from now until the exam to make sure I still got it. Its a complex equation to memorize and while its plug and chug, I can see a few questions on it during the exam.
I got Global down, now I need to get Micro. Won’t be pretty if Macro show up though
Micro Performance Attribution isn’t too bad. But Global sucks. For Micro, remember that the first difference calculation in Pure Sector and Within Sector are the same (weights of portfolio and benchmark), and the last difference calculation in Within Sector and Allocation/Selection are the same (returns between portfolio and benchmark). Write those down somewhere right when you get in the exam, they you just have to remember the other two plugs, the R(B,i) - R(B) on Pure Sector Allocation, and the W(B,i) on the Allocation/Selection.
My answer: CAE (Currency Allocation Effect) = WeightP x (Diff of portforlio return in domestic vs foreign currency) - WeightB x (Diff of benchmark return in domestic vs foreign currency) MAE (Market Allocation Effect) = (Portfolio weight - Benchmark weight) x Benchmark return in foreign currency SAE (Security Allocation Effect) = Portfolio weight x (Portfolio return in foreign currency - Benchmark return in foreign currency)
stalla’s example is very good. I probably took couple of hours to understand it and then I just glanced through them again and again in the next few days(10-15 mts). Now it is kind of there and I hope will be there till June 7th…
ok I think I finally got the Global - I wrote all formulas out, will look at it daily… Here is my breakdown on MICRO which I think is more straightforward: Returns due to Asset Alloc. = Sum (W port. - W index sect.) * ( R index sect - R total index) Returns due to Within Sect. Security Selection = Sum ( W index sect ) * (R portf. - R index sect.) Returns due to joint allocation and sector interaction = sum (W port. - W index sect) * (R portf - R index sect) this last one is kind of a residual and if it’s large in comparison to the first two then it’s not a good thing, it means the manager lacks skill (I think) the first one - I try to remember it by this: you are measuring the asset allocation skill that’s why you compare porfolio weight to index weight and multiply by performance of the index sector… the second one - is stock picking so you leave the weight of the index and multiply by portfolio return minus index return (that one is the easiest to remember I think)
I think the easier way to interpret the pure sector allocation below is to think where you have overweight or underweight the sector (i.e W port less W index sect) and where your index sector has outperformed the total index (i.e. R index sect less R total index). Pure sector allocation = Sum (W port. - W index sect.) * ( R index sect - R total index)