Quants find hidden currency risk in domestic stocks
Pure exposure to home equities harder to isolate than previously thought, new paper says
“How foreign is my domestic portfolio?” seems an unusual question for investors to ask. But investors in single-country stocks may be taking more currency risk than they think, suggests an upcoming paper by Dori Levanoni, an investment partner at First Quadrant.
The findings pose a problem to fund managers wanting to isolate a pure exposure to single-country equities. Whether to hedge foreign exchange becomes a harder decision if – as the results suggest – the correlation between forex and
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