Attribution

Abstract

This flexible, unified, and portfolio-centered approach to attribution treats attribution questions that occur before the fact (ex ante) and after the fact (ex post) symmetrically. Three important aspects of an analysis of a portfolio ex ante are its predicted risk, the information ratio (which measures the potential to add value), and the transfer coefficient (which shows the manager's ability to capture that potential).The product of these three variables is the portfolio's predicted alpha. Ex post analogues of these concepts are the predicted risk, the opportunity set (which shows how well the manager could do with perfect foresight), and the realized information coefficient (which measures the correlation between the forecast and the outcome). The product of these three quantities is the return of the portfolio. The author shows how to attribute the transfer coefficient and realized information coefficient to sources in a general manner.