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) To 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 the above

Question

Quizplus · Accepted Answer

The analysis effect refers to the extra return that can be achieved by acquiring temporarily mispriced bonds in the portfolio, based on their risk level. It is a form of active management that can add value to the portfolio. The other options (A, C, D, and E) are not related to the analysis effect.

In the Evaluation of Bond Portfolio Performance, the Analysis Effect