I learned a way to make an equation simpler for pure allocation effect
I was looking at a question to calculate pure allocation effects for manager performance. The usual is to sum the following
(Manager weight - benchmark weight)(benchmark return - average return)
I solved the problem the following way
(manager weight - benchmark weight)(Benchmark return)
The average return will sum to zero since the numbers on the right side sum to zero anyways. I always learned this equation the Schweser way, but I just realized that you can make it much simpler using my method. Try it out and see if it works. Let me know your results. |