Arithmetic and Geometric Attribution
J. Stephen Burnie, Portfolio Analytics Ltd.;
James A. Knowles, Portfolio Analytics Ltd.;
and Toomas J. Teder, Portfolio Analytics Ltd.

Most attribution models are arithmetically formulated and measure the manager's effect as the "value added" or difference between a fund's return and a passive benchmark return.  The authors contend that such models are prone to error and may produce inconclusive results.  This paper illustrates the benefits of employing geometric attribution which defines the "management effect" as the ratio of fund return factor to benchmark return factor.