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A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 (because in the long run you benefit from purchasing power parity effect in FX).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010. Again hedging is shown to reduce volatility. But how much depends on what your home currency is.

A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 Currency hedging over long horizons: because in the long run you benefit from the purchasing power parity effect in FX. (For example if you are a US investor who has some investments abroad and there is a long period of high inflation at home, the USD will depreciate and your foreign assets will be worth more, providing some inflation protection).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010. Again hedging is shown to reduce volatility. But how much depends on what your home currency is.

A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). [http://www.hbs.edu/faculty/Pages/item.aspx?num=5305 ] It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 (because in the long run you benefit from purchasing power parity effect in FX).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010 [https://www.imf.org/external/pubs/cat/longres.cfm?sk=23994.0 ]. Again hedging is shown to reduce volatility. But how much depends on what your home currency is.

A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 (because in the long run you benefit from purchasing power parity effect in FX).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010. Again hedging is shown to reduce volatility. But how much depends on what your home currency is.

A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). [http://www.hbs.edu/faculty/Pages/item.aspx?num=5305] It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 (because in the long run you benefit from purchasing power parity effect in FX).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010 [https://www.imf.org/external/pubs/cat/longres.cfm?sk=23994.0]. Again hedging is shown to reduce volatility.

A famous article many years ago was The Free Lunch in Currency Hedging by Andre Perold (1988). [http://www.hbs.edu/faculty/Pages/item.aspx?num=5305 ] It showed that while currency hedging does not change long term returns, it does reduce volatility. Thus, for a mean variance investor, it could be beneficial. This is because FX is not much correlated with equity returns, and thus accepting FX risk adds unnecessary volatility (an argument first made by Solnik in 1974).

An argument for not hedging was made by Froot in 1993 (because in the long run you benefit from purchasing power parity effect in FX).

A recent paper on this issue is Schmittman: Currency Hedging for International Portfolios, IMF, June 2010 [https://www.imf.org/external/pubs/cat/longres.cfm?sk=23994.0 ]. Again hedging is shown to reduce volatility. But how much depends on what your home currency is.