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Chapter 5 - Performance Attribution > INTERACTION
INTERACTION
A flaw of both Brinson models is the inclusion of the interaction or other term. Interaction is not part of the investment decision process; you are unlikely to identify in any asset management firm individuals responsible for adding value through interaction.
While it is true that interaction reflects the combined effect of asset allocation bets with stock selection decisions, portfolio managers simply do not seek to add value through interaction. For most investment decision processes the asset allocation decision comes first and stock selection decisions are taken after the cash has been allocated.
Table 5.3 Brinson and Fachler attribution
Figure 5.4 Interaction combined with selection
For genuine bottom-up stock pickers, asset allocation decisions are not made, therefore the attribution model should reflect this process and measure the contribution of each stock decision to the overall performance ignoring asset allocation.
