Performance Attribution
We can measure the contribution of each of these factors following a manner similar to the
performance attribution techniques introduced in Chapter 24.
1. Currency selection measures the contribution to total portfolio performance attrib-
utable to exchange rate fluctuations relative to the investor’s benchmark currency,
which we will take to be the U.S. dollar. We might use a benchmark like the EAFE
index to compare a portfolio’s currency selection for a particular period to a passive
benchmark. EAFE currency selection would be computed as the weighted average
of the currency appreciation of the currencies represented in the EAFE portfolio
using as weights the fraction of the EAFE portfolio invested in each currency.
bod61671_ch25_882-925.indd 918
bod61671_ch25_882-925.indd 918
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