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This is based on the standard Brinson-Fachler attribution scheme, where the securities in the portfolio and benchmark are divided up into buckets based on their modified duration. This scheme has the advantage that it is readily understandable, particularly by managers who have an equity background .
Returns-based, or factor-based, attribution methods also began to be developed after the 1970s; these attribution methods require time series return data of a portfolio, and may require time series return data of securities held in that portfolio and of explanatory factor portfolios to conduct performance attribution. These methods do not ...
Brinson and Fachler (1985) and Brinson, Hood, and Beebower (1986) introduced the Brinson models as a foundation for investment portfolio performance attribution. [6] These models further sub-divide active returns due to active management into security selection - return achieved through selecting different securities than the benchmark, asset allocation - return achieved through weighting ...
These methods still require assumed restrictions on the evolution of exposures, such as a return to normality assumption, [6] or a fixed turnover parameter such as in Dynamic Style Analysis. [7] These models are usually considered separate from classically defined ‘RBSA’, though they continue to analyze style based on returns.
Example investment portfolio with a diverse asset allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. [1]
The user is only required to state how his assumptions about expected returns differ from the markets and to state his degree of confidence in the alternative assumptions. From this, the Black–Litterman method computes the desired (mean-variance efficient) asset allocation.
Simply stated, post-modern portfolio theory (PMPT) is an extension of the traditional modern portfolio theory (MPT) of Markowitz and Sharpe. Both theories provide analytical methods for rational investors to use diversification to optimize their investment portfolios.
One method, by Valtorta and colleagues uses probabilistic methods, adds Bayesian analysis to ACH. [11] A generalization of this concept to a distributed community of analysts lead to the development of CACHE (the Collaborative ACH Environment), [ 12 ] which introduced the concept of a Bayes (or Bayesian) community.