On Page 214 of Volume 6 (reading 47) for single period attribution they have calculated market allocation effect as: -0.1x(5%) +10%x(-5%)=-1% and for multi period attribution it is calculated for a single period as (page 224) : 0.1x(20%-10%)-0.1x(0%-10%)=2% can anyone explain why the discrepancy in the formulae? The source of my confusion is this: as i understand, mkt allocation is over/underweight x benchmark return in local currency… while this is true in page 214, but for multi period in page 224 they did it differently. (maybe you do it differently for multi period, but i fail to understand the logic) Apologize for not typing out the exact stuff, anyone who cares will have to look up vol 6 - pg 214 and 224 i guess (or maybe stalwarts like paraguy wouldn’t even need to do that :D!)! Thanks in advance!
I forgot the logic behind this, but for multiperiod attribution you have to take into effect the compounding effects of both the portfolio and the benchmark, that’s why you have to go through that weird process: Active Return 1(1+Benchmark Return 2)+Active Return 2(1+Portfolio Return 1) I’m just going to commit to memory and move on.
As i understand, you have to do that compounding stuff when you are linking two single period attribution effects. when you are calculating it for a single period the formula should remain the same?
I really didn’t understand this question. Worse case scenerio - one whole item set on this worth ~5% of the exam which everybody will bomb or 1 question that everybody will bomb. I didn’t even bother reading
I hear you BPBB!, multi period sits right up in the list of brain jamming stuff, including cash and carry! 
I was hoping if someone from AF would have an easier way to understand this.
cash and carry is much easier and I think think there is a very likely chance of having a cash and carry question on the exam
it’s pretty mean from CFAI, but in the first example (p 214), the overall benchmark return is “0”, so you don’t have to deduct anything there and they did not make it visible. on the 2nd example on p 223/224, the benchmark returned different than 0, thus, it needed to be substraced. Remember, when you see “Allocation”: Difference in allocation * (Return Benchmark Segment - Return Benchmark overall) as otherwise the stuff would not add up. Hope that helped and thanks for pointing that out, helped me better remember it, too
I read the text and my understanding is that although the same name, those are two different attributes. confirm or give better explanation pls
pcf, yes, you’re right, mathematically for the decomposition of global portfolios (as with (6) on p 213): Example: Portfolio Asset weights: A 90% w. 20% Return, B 10% w -10% (Currency, yield and security selection = 0) Overall = 17% Benchmark: 50% w 20% Return and 50% with -10% --> Overall = 5% Decomposing w/out Substracting Benchmark Return: Benchmark = 5% + Allocation .4*20%+(-.4*-10%) --> 12% --> Overall Return = 17% which is CORRECT SOLUTION (hope so and am happy for corrections if necessary): First example is about the decomposition of Total Portfolio Return wile second example is about decomposition of ALPHA (s p225, Security Selection + Market Allocation sum up only to market OUTperformance). Do I see this right? Thanks for feedback!
needn’t consider this .CFAI will not test on it . skip it
Malawyer, The formula for market allocation is : (Wj - Wj*)xIj (on page 213) it means the over/underweight is only multiplied by benchmark return in local currency. Im still confused. maybe pfcfaataf is right that these two are different things??
djinn, that’s what I wanted to say, these are two different things: either you look at portfolio return or excess portfolio return (which would need 2 different formulas). goodman: you give me a pass guarantee cfai won’t test it? Any other materials I can throw away and not learn? 
Maybe they won’t test the difference between formula a and b, but I am quite certain that attribution analysis will be some part of the test, cominbed with currency effects this would make a good catch-all question. If you calc only the excess part and substract benchmark return from each allocation, the result will be 12%, which is the excess return in my example.
Hi Both formulas are mathematically the same, i.e. they have the same total result. However, the formula on pg 224 allows you to to split the total market allocation and verify the contribution to market allocation of each market separately.