Rethinking currency hedging

Currency risk is becoming an increasingly important issue for both institutional and private investors. The study examines this evidence over the last century. The findings not only have serious implications for future foreign currency investment, but also for investors' entire strategic asset allocation.

• Currency risk is one of the biggest risks associated with international investments
• Currency risk is, on average, not offset by higher returns. It represents a "bad" risk and should be avoided
• Currency hedging enables this risk to be significantly reduced without having to sacrifice expected returns
• Hedged foreign investments can even be seen as a substitute for domestic investments

These findings emphasise the strategic relevance of currency risk.

Currency hedging, therefore, is not just a strategic necessity; it implies systematic change in the definition of the strategic asset allocation and asset management.