Ch.10 · Benchmarks and Performance Evaluation · hard
What is 'return attribution' analysis in mutual fund performance evaluation?
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EXPLANATION
Return attribution analysis breaks down a fund's outperformance (or underperformance) vs benchmark into components: (1) Sector allocation effect — was the fund overweight in outperforming sectors?; (2) Stock selection effect — within sectors, did the chosen stocks outperform?; (3) Interaction effect. This helps assess whether the fund manager's skill is in sector calls or stock picking.
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