Attribution.levels: provides multi-level sector-based geometric attribution

In R-Finance/PortfolioAttribution: Performance attribution tools used for identifying sources of portfolio return and risk.

Description

Provides multi-level sector-based geometric attribution. The Brinson model attributes excess returns at one level. This function works with more complex decision processes. For instance, the 3-level decision process may have the following levels: type of asset - country - sector. The levels should be specified in the vector with elements in the particular order: from the highest level to the lowest. Returns and weighs for portfolio and benchmark should be at the lowest level (e.g. individual instruments). Benchmark should have the same number of columns as portfolio. That is there should be a benchmark for each instrument in the portfolio (possibly 0). The contribution to the allocation in the i^{th} category for the d^{th} level is:

≤ft(^{d}w_{pi}-^{d}w_{bi}\right)\times ≤ft(\frac{1+^{d}R_{bi}}{1+^{d-1}R_{bi}}-1\right) \times\frac{1+^{d-1}R_{bi}}{1+bs^{d-1}}

The total attribution for each asset allocation step in the decision process is:

\frac{1+^{d}bs}{1+^{d-1}bs}-1

The final step, stock selection, is measured by:

^{d}w_{pi}\times≤ft(\frac{1+R_{pi}}{1+^{d}R_{bi}}-1\right) \times\frac{1+^{d}R_{bi}}{1+^{d}bs}

Usage

  Attribution.levels(Rp, wp, Rb, wb, h, ...)

Arguments

Rp	xts, data frame or matrix of portfolio returns
wp	vector, xts, data frame or matrix of portfolio weights
Rb	xts, data frame or matrix of benchmark returns
wb	vector, xts, data frame or matrix of benchmark weights
h	data.frame with the hierarchy obtained from the buildHierarchy function or defined manually in the same style as buildHierarchy's output
...	any other passthrough parameters

Value

returns the list with geometric excess returns including annualized geometric excess returns, total attribution effects (allocation, selection and total) including total multi-period attribution effects, attribution effects at each level and security selection

Author(s)

Andrii Babii

References

Bacon, C. Practical Portfolio Performance Measurement and Attribution. Wiley. 2004. p. 215-220

See Also

Attribution.geometric

Examples

data(attrib)
Attribution.levels(Rp = attrib.returns[, 1:10], wp = attrib.weights[1, ], Rb = attrib.returns[, 11:20],
wb = attrib.weights[2, ], h = attrib.hierarchy, c("type", "MarketCap", "Sector"))
Attribution.levels(Rp = attrib.returns[, 1:10], wp = attrib.weights[1, ], Rb = attrib.returns[, 11:20],
wb = attrib.weights[2, ], h = attrib.hierarchy, c("type", "Sector"))

R-Finance/PortfolioAttribution documentation built on May 8, 2019, 4:48 a.m.