Publication Type
Journal Article
Version
publishedVersion
Publication Date
4-2016
Abstract
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.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Financial and Quantitative Analysis
Volume
51
Issue
2
First Page
629
Last Page
654
ISSN
0022-1090
Identifier
10.1017/S0022109016000284
Publisher
Cambridge University Press
Citation
MASSA, Massimo; WANG, Yanbo; and ZHANG, Hong.
Benchmarking and currency risk. (2016). Journal of Financial and Quantitative Analysis. 51, (2), 629-654.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7049
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.