{"id":735,"date":"2015-12-10T09:41:12","date_gmt":"2015-12-10T08:41:12","guid":{"rendered":"http:\/\/bicon.li\/?p=735"},"modified":"2026-02-06T10:37:24","modified_gmt":"2026-02-06T09:37:24","slug":"new-way-of-brinson-style-performance-attribution","status":"publish","type":"post","link":"https:\/\/bicon.li\/en\/2015\/12\/10\/new-way-of-brinson-style-performance-attribution\/","title":{"rendered":"New way of Brinson Style Performance Attribution"},"content":{"rendered":"

Brinson Attribution \u2013 why we split \"active decisions\" into components<\/h3>\n\n\n\n

When comparing a portfolio to its benchmark, the standard approach to explaining active return (i.e. portfolio over- or underperformance versus the benchmark) is Brinson attribution. It decomposes relative (%) performance into:<\/p>\n\n\n\n

    \n
  1. Asset Allocation Effects<\/strong>: did we overweight\/underweight (Wp) the \u201cright\u201d asset classes (j) vs. the benchmark (Wb)?<\/li>\n\n\n\n
  2. Security Selection Effects<\/strong>: did we pick better\/worse instruments (Rp) within each asset class (j) vs. the benchmark (Rb)?<\/li>\n\n\n\n
  3. an additional Interaction Effect<\/strong>s: allocation and selection reinforcing each other<\/li>\n<\/ol>\n\n\n\n
    \"\"<\/figure>\n\n\n\n

    In other words, Brinson is designed to measure and explain manager-controlled decisions versus a benchmark. The key practical question then becomes: Which performance metric best reflects those decisions, especially when reallocations create real cash flows between sub-portfolios?<\/p>\n\n\n\n

    Measuring Returns of active investment decisions<\/h3>\n\n\n