Currency Risk and Equity Allocations by International Mutual Funds

25 Pages Posted: 14 Nov 2018

See all articles by Teodor Dyakov

Teodor Dyakov

EDHEC Business School

Evert Wipplinger

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: November 2, 2018

Abstract

We show that international equity mutual funds underweight equity markets with risky currencies and overweight equity markets with less risky ones. This risk-management practice is an important determinant for allocations among foreign equities and can also help explain levels of home bias for individual funds. On average, this leads to a reduction of fund volatility but puts a constraint on stock-picking and performance. Our findings stress the importance of currency risk in explaining equity allocations by professional asset managers around the world.

Keywords: International Mutual Funds, Currency Risk, Equity Allocation

JEL Classification: F21, G14, G15, G23

Suggested Citation

Dyakov, Teodor and Wipplinger, Evert, Currency Risk and Equity Allocations by International Mutual Funds (November 2, 2018). Available at SSRN: https://ssrn.com/abstract=3277702 or http://dx.doi.org/10.2139/ssrn.3277702

Teodor Dyakov (Contact Author)

EDHEC Business School ( email )

393 Promenade des anglais
Nice, 06202
France

HOME PAGE: http://www.teodordyakov.work

Evert Wipplinger

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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