can someone please explain to me why the equation for Market Allocation contribution on CFAI pg. 213, which is (Wj - Wj*)Ij, is the same equation they use in Example 4 on the same page, but different from what they use in the example 6 on CFAI pg. 224 (top of page). They use (Wj - Wj*) x (Ij - I) in the second example Wj = weight of market j in the portfolio Wj* = wight of market j in the benchmark Ij = return in market j in the benchmark I = total return of benchmark Thanks in advance.
nevermind, i just figured it out.
Nope, didn’t figure it out, original question still stands. Sorry for the back and forth. Anyone know why the equations are different?
Don’t have it in front of me, but the correct equation for sector allocation contribution is the 2nd one (Wj - Wj*) x (Ij - I).
DC Zanini Both are correct. Market Allocation = (Wj - Wj*) x (Ij - I) ALWAYS WORKS for when you calculate total market allocation for all j e.g. sectors, or for when you calculate individual market allocation for one j e.g. one sector. Market Allocation = (Wj - Wj*) x Ij ONLY WORKS for when you calculate total market allocation for all j e.g. sectors Test it out with numbers in a sample question if you want to prove this to yourself.
Pg 224 looks to be a mulitperiod calculation.
bidder Wrote: ------------------------------------------------------- > DC Zanini > Both are correct. > > Market Allocation = (Wj - Wj*) x (Ij - I) > ALWAYS WORKS for when you calculate total market > allocation for all j e.g. sectors, or for when you > calculate individual market allocation for one j > e.g. one sector. > > Market Allocation = (Wj - Wj*) x Ij > ONLY WORKS for when you calculate total market > allocation for all j e.g. sectors > I’ll have to work a sample question to reinforce the concept. Makes sense on the surface though. I don’t know why they wouldn’t just put the first equation you list as the Market Allocation contribution component in the equation on pg. 213 then. Thanks
I was doing this last night and got freaked out too. I did it from Schwesers notes and this distinction is not there. Market return component, also 2007 question. Same thing. Can anybody explain the difference?
I’m still getting my @ss kicked by the calculations in this reading. I don’t know if it is burnout or what, but I can’t seem to keep the various equations and how they relate to one another straight. Anyone else in the same boat? Would someone like to summarize the important equations and how they relate to one another? Edit: by the way, in regards to my original post in this thread, Schweser addresses this CFAI contraction on page 149 of book 5. Apparently Schweser spoke with CFAI and were told that both equations result in the same answer which obviously isn’t the case. They better not have a question on this. Those bastards.