324 RISK BUDGETING 3.

investment funds

   Country stock selection. Within each country, this measures the impact that stock selection has on the active portfolio's total return. It provides a measure of a portfolio manager's ability to select stocks within a country. 4.   Country sector weight. Within each country, this measures the impact of relative sector weightings on the active portfolio's total return. It provides a measure of a portfolio manager's ability to choose sectors within a country. We now explain these computations in more detail. The country currency weight is the sum of the relative currency weight effect and the currency performance effect. These are defined as follows (for the cth country): Relative currency weight: ["/?(f-l)-"/J(f-l)]x{[rfce(f)-^(f)]-[rfc(f)-^(f)]} (19.61) Currency performance: wl{t-l)x^r;(t)-tp{t\-\r£{t)-tb{f^ (19.62) The country currency weight is equal to (19.61) plus (19.62) and then summing over all countries. This yields: {[rp(t)-£p(t)]-[rb(t)-£b(t)]} (19.63) Country allocation (i.e., market weight) is computed as follows (for the cth country): \wl{t-l)-wbJt-l)Y\tb{t)-lb(t)\ (19.64) In order to define country stock selection and country sector weight, we need to define additional variables. We assume that there are /(/ = 1, . . . , /) sectors within each of the C countries. ^s6c(,'(t) = Local return of the /th sector in the cth country based on the benchmark portfolio. ^Sc(/I(£) = Local return of the /th sector in the cth country based on the managed portfolio. w\. it - 1) = Benchmark portfolio weight of the /th sector in the cth country. wps it - 1) = Managed portfolio weight of the /th sector in the cth country. Country stock selection is defined as (for the cth country) [;=1 wl(t-l) L Jj

Read also about: return money investment ready on investment