July 2008
Intermediate to advanced
400 pages
11h 3m
English
Content preview from Practical Portfolio Performance Measurement and Attribution, Second Edition
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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:
and in the base currency of the portfolio:
rL = ∑wirLi (or weighted average local return)
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:
and in the base currency of the portfolio:
B.1.3 Semi-notional returns
We define the semi-notional ...
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