Performance Attribution: Measuring Dynamic Allocation Skill

21 Pages Posted: 27 Mar 2010 Last revised: 11 Aug 2013

See all articles by Jason C. Hsu

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates; University of California, Los Angeles - Anderson School of Business

Vitali Kalesnik

Research Affiliates Global Advisors

Brett W. Myers

Texas Tech, Rawls College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2010

Abstract

Classical performance attribution methods decompose manager alpha into factor allocation and stock selection components. A manager can produce alpha through factor tilts relative to a benchmark and by stock selection within each factor. However, traditional attribution methods do not explicitly assess a manager’s dynamic allocation skill in the factor domain. We propose a generalized framework for performance attribution that decomposes the allocation effect into value-added from both static and dynamic factor exposures and thus yields additional insight into sources of manager alpha. Such a decomposition can assist investors in identifying and quantifying manager skill, provide insight into a managers investment approach, style, and biases, as well as aid in benchmark selection and creation.

Keywords: Performance Attribution, Mutual Funds, Brinson Attribution

Suggested Citation

Hsu, Jason C. and Kalesnik, Vitali and Myers, Brett W., Performance Attribution: Measuring Dynamic Allocation Skill (March 26, 2010). Financial Analysts Journal, Vol. 66, No. 6, 2010, Available at SSRN: https://ssrn.com/abstract=1578934 or http://dx.doi.org/10.2139/ssrn.1578934

Jason C. Hsu

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Vitali Kalesnik

Research Affiliates Global Advisors ( email )

16 Berkeley Street
London, W1J 8DZ
United Kingdom
+44 2039299880 (Phone)

HOME PAGE: http://https://www.researchaffiliates.com/en_us/home.html

Brett W. Myers (Contact Author)

Texas Tech, Rawls College of Business ( email )

Lubbock, TX 79407
United States

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