The Contribution of Asset Allocation Policy to Portfolio Performance

It is well known that asset allocation policy is the major determinant of fundperformance. However, there is substantial disagreement about the exactmagnitude of the contribution of asset allocation. Following the approach inIbbotson and Kaplan (2000), we use German and Swiss balanced mutualfund data to show that the correct answer depends on the specific questionbeing asked. We find that more than 80 percent of the variability in returnsof a typical fund over time is explained by asset allocation policy, roughly60 percent of the variation among....