Mastering Attribution in Finance

3

Equity attribution

3.1 Introduction

3.2 Brinson attribution

3.3 Single-level Brinson attribution

3.4 Multiple-level asset allocation

3.5 Off-benchmark securities

3.6 Successive portfolio attribution

3.7 Security-level attribution

3.1 INTRODUCTION

This chapter describes the basic concepts required to understand and run market value attribution, in which the excess returns made by a portfolio against its benchmark are decomposed into returns generated by asset allocation and stock selection decisions.

The most commonly used algorithms used in this area are associated with Gary Brinson, who was first author on two widely cited papers on applying the technique to portfolios of equities (Brinson and Fachler, 1985; Brinson et al., 1986). For ...