and to identify and explain important practical issues related to conducting return attribution. The rest of the chapter is organized as follows: II First we review the usefulness of attribution to various market participants, from portfolio managers to clients of an asset management organization. II Then we provide a review of return computations that are critical components to the return attribution calculation. II The third section presents two return attribution methods1 in the context of a single region (e.g., U.S.) framework. These methodologies are: 1.       Factor model. This approach is based on a linear factor model of returns and assumes that a cross section of returns can be explained by a set of common factors. Portfolio returns are decomposed into returns from systematic (factor) and stock-specific components. Typically, quantitatively oriented portfolio managers subscribe to this approach as it relies on a formal model of asset returns. 2.       Asset grouping. According to this methodology, stocks are grouped by some criterion such as industry, sector, or investment style classification. Returns from each of these groups are then computed. This approach, which generates so-called variance analysis reports, does not depend on a model of asset returns and, therefore, it is more ad hoc than the factor model-based methodology. We find that fundamental equity portfolio managers who do not rely heavily on a quantitative portfolio construction process subscribe to the asset grouping approach. The last part of this section explains multiperiod attribution. When going from single-period to multiperiod attribution, we need to "link" sources of return in order to get consistency among the sources and cumulative portfolio returns. We illustrate these methodologies using reports from Goldman Sachs' portfolio analysis and construction environment (PACE) on specific accounts. II The next section presents return attribution on international equity portfolios. We present and explain how to calculate sources of return from countries and currencies not previously included in the single region model. II Finally, we explain the potential differences between sources of performance and sources of return. This is an important practical matter and involves the residual term that arises when performance and return-which is based on a simple buy-and-hold strategy-differ. WHY RETURN ATTRIBUTION MATTERS Return attribution is the ex post complement to ex ante risk decomposition. It allows both portfolio managers and their clients to identify the sources of return and !For a review of performance measurement and background on differentiating between performance attribution and return attribution, see Chapter 17.