A New Measure of Tactical Allocation Skills in Performance Attribution Analysis

Journal of Performance Measurement, Forthcoming

Posted: 5 Aug 2010 Last revised: 12 Aug 2010

See all articles by Wenling Lin

Wenling Lin

Office of Comptroller of Currency

Date Written: August 4, 2010

Abstract

The emergence of tactical allocation and factor timing strategies has prompted professionals to devise various means of measuring tactical and timing skills. This paper proposes a new measure, based on the new cash flows into and out of asset segments of the portfolio, which can easily be incorporated into conventional holdings-based or multifactor-based performance attribution systems. The other advantages are its use of portfolio weighting and characteristics that provide a more accurate measurement of risk exposure and its capture of dynamic exposure changes that react to new information. Using the Monte Carlo simulation method, I show that this method is more conservative than the Daniel et al. (1997) or Lo (2008) method in the literature.

Keywords: Performance Measurement, Active Management, Holdings-Based Performance Attribution, Multifactor-Based Performance Attribution, Tactical Asset Allocation, Factor Timing Skill, Mutual Funds

JEL Classification: G11, G12

Suggested Citation

Lin, Wenling, A New Measure of Tactical Allocation Skills in Performance Attribution Analysis (August 4, 2010). Journal of Performance Measurement, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1653387

Wenling Lin (Contact Author)

Office of Comptroller of Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

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