GIPS performance reporting requirements - Quiz currency, together, security, reporting, allocation

adehbone

I got this wrong, so wanted to post ...

A consultant is analyzing the performance of a composite over the past two years. To do so, he determines the excess return for each period and then compounds these over the two years to obtain the total two year excess return. For the attribution analysis, he computes the security selection effect, the market allocation effect, and the currency effect each year. He then adds all the yearly security selection effects together to get the total security selection effect. He does the same for the market allocation effect and the currency allocation effect.

A. The calculations for both the excess return and the attribution analysis are correct.
B. The calculations for both the excess return and the attribution analysis are incorrect.
C. The calculations for the excess return are correct but the calculations for the attribution analysis are incorrect.

bkballa

B. From V2 schweser exam 1

bboo

What is the correct answer ?

Darien

Just curious...where did this question come from?

Windjammer

B for Boston.

strikethree

B

Go with boston21 explanation on both the excess return and the attribution analysis.

mik82

B is correct.

Boson21 has right explanation.

Excess return can't be compounded.

justin88

^ yes but you cannot add excess returns, nor can you compound them for multi-periods.

lcai

What exactly is the income yield factor? I don't remember it from any of the examples that I saw. I used schweser and for this kind of attribution they presented the annual active return as:

Currency Effect + Market Allocation + Security Selection = Excess return for a given year

Excess return over multiple years = X1(1+Rb2) + X2(1+Rp1)

mcmc

mib - I selected B because though you can add the individual components, the question doesn't mention the Income yield factor, which is part of that big summation formula. I therefore took it to mean that the question was intentionally trying to trick us by saying you only have to add those 3 components, which I reasoned was wrong.