Benchmarking and Currency Risk

44 Pages Posted: 15 Mar 2012 Last revised: 31 Oct 2014

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Yanbo Wang

Sungkyunkwan University (SKK) Graduate School of Business

Hong Zhang

Tsinghua University - PBC School of Finance

Date Written: March 10, 2012


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.

Keywords: mutual fund, currency risk, portfolio management

JEL Classification: G23, G30, G32

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: or

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Yanbo Wang (Contact Author)

Sungkyunkwan University (SKK) Graduate School of Business ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Seoul, 110-745
Korea, Republic of (South Korea)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083


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