Just a general question. How come with a domestic perf allocation for within-sector (ie security selection) performance we use the BENCHMARK weighting as the base, but when we go to the same calculation for a foreign currency perfomance allocation, we use the PORTFOLIO weighting as the base. This seems very unintuitive. Thanks in advance
We discussed this some time ago. The reason is in the domestic portfolio you add the sector-selection interaction, while in the global performance you do not add this component. You can work the math: Security Selection = Wb( Rp - Rb) Security Selection interaction = (Wp - Wb)(Rp - Rb) Add both = Wp(Rp - Rb) same as security selection in global attibution
Ahh…I see. Thanks
I am working on Schweser Prac Exam Vol 2. Exam 3 morning. Q7 B What if they ask “selection effect”? Wb( Rp - Rb) or Wp(Rp - Rb) I am confused!
The answer which they provided is Wb( Rp - Rb) Will I get all wrong if I use the portfolio weight?
yeah, you would certainly get it wrong
So if the question is asking for selection effect. Which one should I put down? Wb( Rp - Rb) or Wp(Rp - Rb)
which selection effect? if its Macro attribution and you are asked ‘within sector selection’, you would put --> Wb(Rp - Rb) if its Global attribution and you are asked ‘security selection contribution’, you would put --> Wj(Rj - Ij) where Wj = weight of segment j in portfolio Rj = return on segment j in portfolio Ij = return on segment j in the market bencmark
volkovv did you memorize “elements of selecting active managers for alternative investments”?