Abstract

http://ssrn.com/abstract=2022803
 
 

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Benchmarking and Currency Risk


Massimo Massa


INSEAD - Finance

Yanbo Wang


INSEAD

Hong Zhang


PBC School of Finance; INSEAD - Finance

March 10, 2012

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

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% to 2% per year.

Number of Pages in PDF File: 44

Keywords: mutual fund, currency risk, portfolio management

JEL Classification: G23, G30, G32

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Date posted: March 15, 2012 ; Last revised: October 31, 2014

Suggested Citation

Massa, Massimo and Wang, Yanbo and Zhang, Hong, Benchmarking and Currency Risk (March 10, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2022803 or http://dx.doi.org/10.2139/ssrn.2022803

Contact Information

Massimo Massa
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)
Yanbo Wang (Contact Author)
INSEAD ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France

INSEAD Logo

Hong Zhang
PBC School of Finance ( email )
No. 43 Chengfu Road
Haidian district
Beijing, 100083
China
HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html
INSEAD - Finance ( email )
1 Ayer Rajah Avenue
Singapore
Singapore
+65 6799 5340 (Phone)
+65 6799 5366 (Fax)
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