Does Asset Allocation Policy Explain 40, 90, or 100 ...

26 2000, Association for Investment Management and ResearchDoes Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance?Roger G. Ibbotson and Paul D. KaplanDisagreement over the importance of Asset Allocation Policy stems fromasking different questions. We used balanced mutual fund and pensionfund data to answer the three relevant questions. We found that about 90percent of the variability in returns of a typical fund across time is explainedby Policy , about 40 percent of the variation of returns among funds isexplained by Policy , and on average about 100 percent of the return level isexplained by the Policy return Asset Allocation Policy Explain 40 per-cent, 90 percent, or 100 percent of perfor-mance? The answer depends on how thequestion is asked and what an analyst istrying to Explain .

Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance? January/February 2000 27 Policy return is the part of the total return that

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