Currency hedges can lower the risk of an internationally diversified portfolio without changing its expected return. Often, however, hedges are not optimized simultaneously with the assets, or they are implemented indirectly by splitting each foreign asset into two fictitious assets, one representing the original asset in its local currency and one representing it in a base currency. A better approach is to implement currency hedges as separate pseudo-assets having their own weights, returns, risks and correlations.
Read the Complete Article in Financial Analysts Journal
Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
5 pages doi.org/10.2469/faj.v50.n1.57ISSN/ISBN: 0015-198X
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