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CFA Level 3
Topic: Equity Portfolio Management
Reading: Portfolio Performance Evaluation
When a manager outperforms or underperforms the benchmark, a question we will want to explore is: What contributed to it? And to answer that question, we have to conduct a performance attribution process.
For equity return attribution, this can be done using the Brinson-Fachler model, which is the focus of the CFA Level 3 syllabus. The Brinson-Hood-Beebower (BHB) model is first introduced to form the foundation, but Brinson-Fachler is the focus in this case.
In the model, there are three effects:
- Allocation effect
- Selection effect
- Interaction effect
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