Portfolio Performance Evaluation - Allocation effect

[Duncan_Wu]

I saw two different formulas for calculating the allocation effect, can someone tell me which one is correct?

1. Ai = (portfolio weight i - benchmark weight i) x Benchmark return i

2. Ai = (portfolio weight i - benchmark weight i) x (Benchmark return i - Benchmark total return)

Thanks

[fino_abama]

I answered this in a previous thread:

Portfolio Performance Evaluation

You can check out the errata on CFA Institute website. In the BHB model (Brinson-Hood-Beebower), they use A_i = (w_i – W_i ) \times B_i to lay the foundation. The Brinson-Fachler model is the focus for the rest of the topic, which is the one with: A_i = (w_i – W_i ) \times (B_i - B)