Measuring the Rebalancing Premium: A New Portfolio Attribution Framework

Performance attribution explains why a portfolio’s performance differs from that of its benchmark. It is, therefore, used as a tool for identifying and quantifying the sources of relative return versus a specified benchmark over a period of time.

In our paper, “Measuring the Rebalancing Premium”, we introduce a new performance attribution methodology – one that, to our knowledge, has never been discussed in literature before – for directly measuring the trading profit, or rebalancing premium.

We discuss:

  • The motivation for the trading profit attribution
  • The algorithm used to calculate it
  • The application of the methodology to sample strategies

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