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Practical Portfolio Performance Measurement and Attribution, Second Edition by Carl R. Bacon

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Appendix B
Multi-currency Attribution Methodology
The following methodology has been developed for use with multi-currency portfolios.

B.1 SCENARIO

Suppose we have a portfolio invested in n asset classes with some asset classes having currencies other than the base currency of the portfolio. Then, suppose that the performance of this portfolio is measured against a benchmark.

B.1.1 Portfolio returns

Let the weight of the portfolio in the ith asset class be wi , where ∑ wi = 1, and let the return of the portfolio assets in the ith asset class in local currency be rLi and in the base currency of the portfolio be ri . Now the total portfolio return in local currency is:
rL = ∑wirLi (or weighted average local return)
and in the base currency of the portfolio:
856

B.1.2 Benchmark returns

Let the weight of the benchmark in the ith asset class be Wi , where ∑ Wi = 1, and let the return of the benchmark for the ith asset class in local currency be bLi, in the base currency of the portfolio be bi and hedged into the base currency be bHi. Now the total benchmark return in local currency is:
857
and in the base currency of the portfolio:
858

B.1.3 Semi-notional returns

We define the semi-notional ...

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