International Portfolio Holdings and Swiss Franc Asset Returns

27 Pages Posted: 5 Aug 2004

See all articles by Peter Kugler

Peter Kugler

University of Basel

Beatrice Weder di Mauro

Graduate Institute Geneva, IHEID; Graduate Institute Geneva, IHEID

Date Written: July 2004


This Paper revisits the puzzle of low returns on Swiss franc assets using a new dataset of international portfolio holdings at Swiss banks. The main findings are as follows. First, we find that the return anomaly is present only for fixed income assets and not for equity. Second, it is mostly due to a long run deviation from uncovered interest rate parity, not a deviation from purchasing power parity. Third, it is unlikely that foreign demand for Swiss assets (possibly due to banking secrecy) is driving down returns: This demand is quantitatively small especially for Swiss franc fixed income instruments. A dynamic factor analysis confirms that foreign demand had almost no impact on Swiss franc asset prices. Finally, we propose a new explanation for low returns on Swiss fixed income assets, namely the diversification benefits offered by these instruments. Applying reversed portfolio optimization to back out the implied returns reveals that the estimated pattern of this returns conforms very well to the observed pattern.

Keywords: Portfolio choice, asset returns, Switzerland

JEL Classification: E43, G11, G12

Suggested Citation

Kugler, Peter and Weder di Mauro, Beatrice and Weder di Mauro, Beatrice, International Portfolio Holdings and Swiss Franc Asset Returns (July 2004). Available at SSRN:

Peter Kugler (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
+41 61 267 3344 (Phone)
+41 61 267 3340 (Fax)

Beatrice Weder di Mauro

Graduate Institute Geneva, IHEID ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
1211 (Fax)

Graduate Institute Geneva, IHEID ( email )

Chemin Eugene Rigot 2
Geneva, 1211

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