Attribution Analysis - Explained
What is Attribution Analysis?
Written by Jason Gordon
Updated at September 29th, 2021
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Table of Contents
What is Attribution Analysis?How Does Attribution Analysis Work?Market Timing and Attribution Analysis: Skill or Luck?Academic Research on Attribution AnalysisWhat is Attribution Analysis?
Attribution analysis is a method of analyzing the performance of an investment portfolio or a fund manager. This method of analysis evaluates why a portfolio performs differently from the market benchmark. This form of analysis is also a performance attribution that seeks to evaluate how the decisions of a fund manager affect the performance of the investment portfolio. Attribution analysis provides insight into how the selection of investment in a portfolio affects the performance of the portfolio. In this analysis, three major factors are responsible for the performance of a portfolio, these are;
- The selection of investments,
- Market timing, and
- The investment style of the manager.
Back to: INVESTMENTS TRADING & FINANCIAL MARKETS
How Does Attribution Analysis Work?
Attribution analysis is a form of analysis that explains why a portfolio performs differently from the market benchmark, resulting in an active return. Active return refers to the difference between the return of a portfolio and the return of the market benchmark. There are certain factors responsible for the performance of a portfolio, this could be the selection of stocks, market timing or the fund managers style. The specific asset clas a fund manager decides to invest in is important to the performance of the portfolio, so also the style of investment the manager chooses to use. Diverse economists have various methods analyzing the style of a manager and the performance of a portfolio.
Market Timing and Attribution Analysis: Skill or Luck?
Market timing is an important factor in attribution analysis, this factor impacts the performance of a portfolio, whether negatively or positively. While some economists and analysts maintain that market timing has to do with the skill of the find manager, others maintain that the impact of market timing has to do more with luck rather than skill. However, analysts point out that in evaluating the performance of a fund manager, investment style use and stock selection are more vital than timing.
Academic Research on Attribution Analysis
- An attribution analysis of the effect of communicator characteristics on opinion change: The case of communicator attractiveness., Eagly, A. H., & Chaiken, S. (1975). An attribution analysis of the effect of communicator characteristics on opinion change: The case of communicator attractiveness.Journal of personality and social psychology,32(1), 136. Conducted a study with 358 undergraduates to test the attribution hypothesis that message persuasiveness decreases to the extent that the position the communicator advocates is expected on the basis of a characteristic he possesses. Some Ss read a message by an attractive or unattractive communicator who espoused a desirable or undesirable position on 1 of 2 topics, while others, without reading the message, estimated the likelihood that the communicator would advocate each position. On expectancies, undesirable positions were judged more likely than desirable ones, and a Source Attractiveness * Position Desirability interaction showed attractive-desirable and unattractive-undesirable communicator-position pairings judged likelier than attractive-undesirable and unattractive-desirable pairings. On opinions, main effects showed attractive communicators more persuasive than unattractive communicators and desirable positions more persuasive than undesirable positions. However, a Source Attractiveness * Position Desirability interaction indicated that attractive communicators were more than unattractive ones given undesirable positions but only equally persuasive given desirable positions. The attractiveness main effect on opinions was interpreted in terms of communicator likability, while the parallelism between expectancies and opinions (and other responses) with regard to the other effects supported the attribution interpretation. Choice or no choice about receiving a message had only a marginal effect on opinion change. (22 ref) (PsycINFO Database Record (c) 2016 APA, all rights reserved)
- An attribution analysis of the locus of control construct and the Trent Attribution Profile, Wong, P. T., & Sproule, C. F. (1984). An attribution analysis of the locus of control construct and the Trent Attribution Profile.Research with the locus of control construct: Extensions and limitations,3, 309-360.Attribution analysis based on the Budyko hypothesis for detecting the dominant cause of runoff decline in Haihe basin, Xu, X., Yang, D., Yang, H., & Lei, H. (2014). Attribution analysis based on the Budyko hypothesis for detecting the dominant cause of runoff decline in Haihe basin.Journal of Hydrology,510, 530-540.
- An attribution analysis of responsibility assessment for audit performance, Arrington, C. E., Bailey, C. D., & Hopwood, W. S. (1985). An attribution analysis of responsibility assessment for audit performance.Journal of Accounting Research, 1-20.
- Group performance and cohesiveness: An attribution analysis, Taylor, D. M., Doria, J., & Tyler, J. K. (1983). Group performance and cohesiveness: An attribution analysis.The Journal of Social Psychology,119(2), 187-198.