PT  - JOURNAL ARTICLE
AU  - Daniele Lamponi
TI  - Currency Exposure in International Minimum-Variance Equity Portfolios
AID  - 10.3905/jwm.2016.19.1.095
DP  - 2016 Apr 30
TA  - The Journal of Wealth Management
PG  - 95--102
VI  - 19
IP  - 1
4099  - https://pm-research.com/content/19/1/95.short
4100  - https://pm-research.com/content/19/1/95.full
AB  - This article aims to contribute to the discussion on low-risk investing in international equity markets by showing the impact of currency-handling strategies on portfolio exposures. Investment professionals usually adhere either to the fully hedged or to the fully unhedged (or converted) approach. Both approaches have their pitfalls: The fully hedged approach neglects transaction costs as well as all operational issues, which can be costly and even jeopardize the approach’s implementation; the converted approach introduces country and currency biases. We first show the impact of the currency-handling methodology on the portfolio exposure. Second, we add the currencies to the optimization problem and compute a minimum-variance portfolio with a real-life set of investment constraints. We show that this global minimum-variance portfolio has exposure to stocks and currencies that lies between fully hedged and converted solutions.TOPICS: Currency, global, interest-rate and currency swaps, performance measurement