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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Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal and fluctuation of value. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Risk controls, as referenced, do not promise any level of performance or guarantee against loss of principal.