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Chapter 18 Excel Application: Performance Attribution
1. What would happen to the contribution of asset allocation to overall
performance if the actual weights had been 70/17/13 in the three markets
rather than 75/12/13?
[Change cells : 15 .7; 16 .17; 17 .13]B B B= = =
The contribution from asset allocation decreases from 0.6249% to 0.4069%.
Why does performance improve?
Overall performance and performance due to asset allocation both decrease.
The actively managed bond portfolio underperformed its benchmark, so
overweighting it decreased the contribution from security selection. Also,
bonds underperformed relative to stocks. Increasing exposure to bonds
decreased excess returns due to asset allocation.
2. Show what would happen to the contribution of security selection to
performance if the actual return on the equity portfolio had been 7.5%
instead of 6.5% and the return on the S&P 500 had been 6.81% instead of
5.81%.
[Change cells : 6 6.81%; 15 7.5%]D C= =
Overall excess returns improve from 1.1184% to 1.12684%.
Explain your result.
The amplitude of outperformance due to security selection does not change
(0.69% before and after). Thus, the contribution from security selection will
not change (0.4935%). The increase in excess returns is entirely a result of
the overweighting in stocks, which increases the excess return from asset
allocation from 0.6249% to 0.7749%.
