The influence of the three Performance Attribution (PA) components (Asset Allocation, Stock Selection and Interaction) on the extra-return provided by an equity portfolio is investigated by simulating a style investing approach based on a Micro Decision Making (MDM) model. A Monte Carlo experiment is carried out in order to consider different scenarios in which the MDM model operates. A conditional regression tree is grown to conditionally decompose the extra-return into the three above-mentioned PA components while controlling for Tracking Error Volatility and the turnover of each MDM portfolio. The ability of such portfolios to overperform the benchmark in a single period is also investigated.
CONDITIONAL PERFORMANCE ATTRIBUTION FOR EQUITY PORTFOLIO
CONVERSANO, CLAUDIO;
2012-01-01
Abstract
The influence of the three Performance Attribution (PA) components (Asset Allocation, Stock Selection and Interaction) on the extra-return provided by an equity portfolio is investigated by simulating a style investing approach based on a Micro Decision Making (MDM) model. A Monte Carlo experiment is carried out in order to consider different scenarios in which the MDM model operates. A conditional regression tree is grown to conditionally decompose the extra-return into the three above-mentioned PA components while controlling for Tracking Error Volatility and the turnover of each MDM portfolio. The ability of such portfolios to overperform the benchmark in a single period is also investigated.
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