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Fundamentals of Performance Attribution: Asset Allocation and Currency
Jan 1, 2003
The first article in this series explained the first principles behind the Brinson model. It also showed how simple it is to calculate exact multi-period attributes at the total level using those first principles. In the second article, we looked at different ways to measure the value added by stock selection. This article is about how to measure the value added by asset allocation and currency allocation. It is based on the example on pages 21-40 of Karnosky and Singer (1994). The Karnosky Singer spreadsheet shows the data and equations for this example. The example has been edited so that it adopts the perspective of an Australian investor, rather than a US investor. The numbers, however, remain unchanged. In particular, the example was constructed before adoption of the Euro, so the example still uses DEM as the currency for Germany.
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