In the evaluation of bond portfolio performance, the analysis effect refers to
A) the difference in portfolio duration and index duration.
B) the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
C) short-run changes in the portfolio during a specific period.
D) the differential return from changing duration of the portfolio during a specific period.
E) None of these are correct.

Question

Quizplus · Accepted Answer

The analysis effect refers to the extra return obtained from exploiting pricing inefficiencies in the bond market by acquiring temporarily mispriced bonds relative to their risk. This is also known as the alpha generated by a portfolio manager.

In the Evaluation of Bond Portfolio Performance, the Analysis Effect