and exchange rate (currency) return. The total return of an asset or portfolio is simply the return that incorporates both the local return and exchange rate return. Depending on how returns are defined-continuous or discrete (percent)-we get different equations for how returns are calculated. Following directly from (19.2), an asset's total return, using percent returns, is defined as 1 JL J (19.3) = ^(t) + Eij(t)+-Ri(t)xEii(t) where Rn(t) = One-period percent total return on the nxh asset Rift) = One-period percent return on the equity positions expressed in local currency (i.e., the local return) E (t) = One-period percent return on the z'th currency per unit of currency;   £,;(*)= '!. ,.-1 For example, suppose that the ?zth position is one that represents the DAX equity index. In this case, R^(t) is the local return on DAX and E (t) is the return on the USD/EUR exchange rate. When the euro strengthens, USD/EUR increases and E (t) > 0. Holding all other things constant, this increases the total return on the equity position. SINGLE REGION (LOCAL MODEL) RETURN ATTRIBUTION In this section we explain return attribution based on a single region (e.g., U.S.) framework. We present two methods-factor model-based and asset grouping- for computing a portfolio's sources of return. In terms of defining portfolios, we refer to managed, benchmark, and active portfolios. The managed portfolio is directed by the portfolio manager. The benchmark portfolio, on the other hand, is some representative, passive portfolio (e.g., S&P 500). The active portfolio is the difference between the managed and benchmark portfolios. Factor Model-Based Approach Factor return attribution decomposes a portfolio's return into factor and specific components. There are three principal sources of return in the factor model-based approach. 1.   Common factors: return due to factors. 2.   Market timing: return due to active beta exposure. 3.   Stock selection: return due to a portfolio manager's ability to select stocks.