In a demanding asset management environment where transparency and risk-adjusted efficiency are essential, we introduce a unified framework for performance attribution that integrates both risk and return. This model extends the traditional Brinson approach by incorporating the market price of risk through the Sharpe ratio. It decomposes performance into allocation and selection effects, assessing their efficiency via a risk-adjusted alpha analogous to Jensen’s alpha. The framework evaluates whether active decisions truly added value relative to the risks taken. By comparing to Menchero’s risk-adjusted performance models, the study highlights their complementarity in measuring risk-adjusted performance. This integrated perspective provides asset managers and investors with a deeper, more actionable understanding of active management.

Philippe Grégoire, Ph.D.