Question: Market allocation contribution

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outlier_1201

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Investor invests in 3 markets: A, B, C. Asking what is the market allocation contribution from market A?
I remember encountering both equations below from exercise problems, which one is it? Did I miss anything, so confused?
  • (portfolio weight A - benchmark weight A) * benchmark return A
  • (portfolio weight A - benchmark weight A) * (benchmark return A - benchmark return aggregate)
 
Could you please elaborate more - what is the crux that makes the difference? Cause theoretically non-GPE can be considered as GPE as well only that currency contribution is zero, right?
geezie wrote:
The first one for GPE. The second one for non-GPE.
Click to expand...
 
If there are different currencies use the first one. I agree it is confusing.
 
outlier_1201 wrote:
Investor invests in 3 markets: A, B, C. Asking what is the market allocation contribution from market A?
I remember encountering both equations below from exercise problems, which one is it? Did I miss anything, so confused?
  • (portfolio weight A - benchmark weight A) * benchmark return A
  • (portfolio weight A - benchmark weight A) * (benchmark return A - benchmark return aggregate)
Click to expand...
First equation you have, I have in my notes as the market allocation effect. Second equation: Pure Sector Allocation –> from the “Micro Performance Attribution” equation.
When I was doing the exercises, it typically asked the “pure allocation” or the “market allocation effect”, so I used the word “pure” as the indicator as to what equation I needed to use.
Does that help?
 
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