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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Acknowledgements
Authors wish to thank the two anonymous referees for valuable suggestions that helped to improve the final version of the paper. Research work of Claudio Conversano is supported by the research funds awarded by University of Cagliari within the “Young Researchers Start-Up Programme 2007”.
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© 2012 Springer-Verlag Italia
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Conversano, C., Lizzeri, A. (2012). Conditional performance attribution for equity portfolio. In: Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Milano. https://doi.org/10.1007/978-88-470-2342-0_13
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DOI: https://doi.org/10.1007/978-88-470-2342-0_13
Publisher Name: Springer, Milano
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