Where was this return calc

some compound return calculation you multiply year one by year two and then add year two multiplied by year one…some wierd calculation I can’t remember for the life of me where it was.

Ra2=ra1(1+rb2) + ra2(1+rp1)

multi period perf attribution

Such a weird formula. Cannot make intuitive sense of it for the life of me.

Me neither, I actually typed it in wrong from memory and had to go dbl check. It makes sense when unread the section but still tough to think of intuitively. I’m just memorizing it and hoping it is either tested superficially or not at all

what section is that? Perf Attribution somewhere? Got a blue box number or anything?

Its in GPE - Multi period attribution

Basically, the active return that you generate in the first period would still compound at the benchmark rate in the second period (the first part of the formula) and the active return in the second period already benefits from the portfolio return in the first period (the second part of the formula).

Pd 1 Pd 2 Net Global 16 10 0.276 Benchmark 7 4 0.1128 Alpha 9 6 Net 0.1632 != 1.09*1.06-1 which is 15.54% but is =9*1.04 + 1.16 * 6 = 9.36 +6.96 = 16.32% =2nd period alpha * growth of benchmark in 2nd period + 1st period growth of portfolio (1.16) * 2nd period alpha

Thanks C.P. for yr example.

Also , just for people who were wondering like me about whether u have to remember the order of doing it , you don’t .( always harder to remember more than a few simple rules)

9*1.10 + 6*1.07 = 9.90 + 6.42 = 16.32% too.

Order doesn’t matter.

order doesn’t matter but since period 1 always happens before period 2 … it does …

so better to draw arrows ->

top left to bottom right (1.16 to 6)

bottom left to middle right (9 to 1.04)

MCAP to punt this one…HUT HUT…