Performance Attribution and the Fundamental Law

Posted: 29 Oct 2005

See all articles by Roger Clarke

Roger Clarke

Analytic Investors, Inc.

Steven Thorley

BYU Marriott School of Business

Harindra de Silva

Analytic Investors, Inc.


The reported study operationalized the fundamental law of active management in the context of a factor-based performance attribution system. The system incorporates factor payoffs in the linear regression framework that many portfolio managers and external reviewers use to judge what is being rewarded in the market. The study indicates that parameters of the fundamental law can be used to approximate and interpret the results of the regression-based performance attribution system. The procedure is illustrated by the use of security holdings, returns, and factor exposure data for two portfolios benchmarked to the S&P 500 Index for April 1995 to March 2004.

Keywords: Portfolio Management, Portfolio Construction, Rebalancing and Implementation, Equity Strategies, Hedge Fund Strategies, Alternative Investments, Hedge Fund Strategies

Suggested Citation

Clarke, Roger and Thorley, Steven and de Silva, Harindra, Performance Attribution and the Fundamental Law. Financial Analysts Journal, Vol. 61, No. 5, pp. 70-82, September/October 2005, Available at SSRN:

Roger Clarke (Contact Author)

Analytic Investors, Inc.

700 So. Flower St., Suite 2400
Los Angeles, CA 90017
United States

Steven Thorley

BYU Marriott School of Business ( email )

616 TNRB
Brigham Young University
Provo, UT 84602
United States
801-378-6065 (Phone)
801-378-5984 (Fax)

Harindra De Silva

Analytic Investors, Inc. ( email )

555 West 5th Street
50th Floor
Los Angeles, CA 90013
United States
213-688-3015 (Phone)
213-688-8856 (Fax)

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