Benchmarking and currency risk

We show that the currency risk embedded in the benchmarks of international mutual funds negatively affects fund performance. More specifically, a high benchmark-implied currency risk induces funds to invest in markets with less volatile currencies, leading to a higher degree of currency concentratio...

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Main Authors: MASSA, Massimo, WANG, Yanbo, ZHANG, Hong
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2016
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7049
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8048/viewcontent/benchmarking_and_currency_risk.pdf
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spelling sg-smu-ink.lkcsb_research-80482022-08-02T07:47:20Z Benchmarking and currency risk MASSA, Massimo WANG, Yanbo ZHANG, Hong We show that the currency risk embedded in the benchmarks of international mutual funds negatively affects fund performance. More specifically, a high benchmark-implied currency risk induces funds to invest in markets with less volatile currencies, leading to a higher degree of currency concentration in portfolio holdings. This currency concentration, however, departs from the optimal equity allocation strategy across countries and reduces fund performance. We document that funds resorting to high currency concentrations underperform funds with low currency concentrations by as much as 1%-2% per year. 2016-04-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/7049 info:doi/10.1017/S0022109016000284 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8048/viewcontent/benchmarking_and_currency_risk.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Finance Finance and Financial Management
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Finance
Finance and Financial Management
spellingShingle Finance
Finance and Financial Management
MASSA, Massimo
WANG, Yanbo
ZHANG, Hong
Benchmarking and currency risk
description We show that the currency risk embedded in the benchmarks of international mutual funds negatively affects fund performance. More specifically, a high benchmark-implied currency risk induces funds to invest in markets with less volatile currencies, leading to a higher degree of currency concentration in portfolio holdings. This currency concentration, however, departs from the optimal equity allocation strategy across countries and reduces fund performance. We document that funds resorting to high currency concentrations underperform funds with low currency concentrations by as much as 1%-2% per year.
format text
author MASSA, Massimo
WANG, Yanbo
ZHANG, Hong
author_facet MASSA, Massimo
WANG, Yanbo
ZHANG, Hong
author_sort MASSA, Massimo
title Benchmarking and currency risk
title_short Benchmarking and currency risk
title_full Benchmarking and currency risk
title_fullStr Benchmarking and currency risk
title_full_unstemmed Benchmarking and currency risk
title_sort benchmarking and currency risk
publisher Institutional Knowledge at Singapore Management University
publishDate 2016
url https://ink.library.smu.edu.sg/lkcsb_research/7049
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8048/viewcontent/benchmarking_and_currency_risk.pdf
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