FRM Part II · FRM Exam Part II · Portfolio Performance Evaluation
Which statement best describes a limitation of single-period Brinson attribution when applied to a portfolio that trades frequently within the evaluation period?
Single-period Brinson attribution relies on beginning-of-period weights, so trading within the period changes actual exposures that the model does not capture. The resulting impact gets misassigned to allocation or selection effects, which can mislead evaluation of frequently trading managers.
- AIt ignores the benchmark entirely
- BIt assumes beginning-of-period weights, so intra-period trading can be misattributed to selection or allocationCorrect
- CIt cannot separate allocation from selection effects
- DIt can only be applied to fixed income portfolios
Explanation
Brinson attribution uses period weights, typically beginning-of-period, and sector returns. Intra-period trades change effective exposures and are not captured, so their impact is mixed into the effects reported. It does separate allocation and selection and works for any asset class.
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