Sector-level Attribution Effects with Compounded Notional Portfolios

One of the drawbacks most commonly cited in criticism of the arithmetic, multi-period attribution linking method known as “compounded notional portfolios”(CNP) or “exact multi-period Brinson” is its lack of allowance for linking attribution effects at the sector level. This paper details an extension to the CNP method for deriving and linking sector-level effects that is simple, intuitive, consistent with common industry practice and precisely additive to the total level effects over any range of time periods. It then proceeds to evaluate this extension in the light of criteria which have previously been applied to the CNP and other linking methods.”