HomeCFACFA Level 3CFA Level 3 | Performance Evaluation: Equity Return Attribution (Brinson-Fachler Model)

CFA Level 3 | Performance Evaluation: Equity Return Attribution (Brinson-Fachler Model)

  • May 8, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 3
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CFA Level 3

Topic: Performance Evaluation

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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