First I have to admit that I have never been really good at thinking about the implications of investments in different currencies. I don't know why but it makes my head spin, this is why I am no FX guy... anyway: Bear with me if this is a silly question!
I have the following situation: I want to thoroughly analyse different equity investments in the Eurozone. Fama-French regression is of course part of that. Now all Fama-French factors (there is a whole bunch of them now) are in USD. Another complicating factor is that - while all investments are in Euros - some are heavily investing internationally themselves and are therefore exposed to currency risk too.
How should I conduct this analysis? Should I
- leave the investments as is and regress the changes of the Euro denominated investments against the respective USD factors,
- convert the investments into USD and regress against the respective USD factors or even
- leave the investments as is and regress the changes of the Euro denominated investments against the respective USD factors + add another currency factor (EUR/USD exchange rate changes)?
What is best practice here? What are the implications? How to interpret the results? Sorry again if this is a silly question.