2
$\begingroup$

It seems to me that Currency Risk can be diversified away and hence one should not get paid for taking it. Do you agree?

$\endgroup$
3
$\begingroup$

Yes, FX generally does not command a risk premium (expected return = 0, but volatility is not 0), and you can improve the Sharpe ratios of global equity/bond portfolios just by hedging away FX risk. See this excellent AQR paper: Risk Without Reward: The Case for Strategic FX Hedging.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.