I am trying to do some performance attribution for a few portfolios we manage. What I am trying to examine are three different sources of returns:
- The general asset allocation
- Security Selection
- The performance of our tactical allocation
I am quite familiar with the textbook way of performance attribution, categorizing assets and then selecting category benchmarks (easier said than done sometimes) and then comparing alpha and beta. But when you are constantly making portfolio security and weighting changes then this simplistic approach doesn't hold (unless I could calculate returns on a daily basis, which I don't have data for.)
I was thinking of making a replica portfolio and then entering trades every time a real trade is done. That way the replica portfolio will have an updated asset allocation (benchmark) to compare with my actual portfolio and the difference should be my security selection alpha.
Ideas or knowledge of papers/books/research in this area would be greatly appreciated.