SSRN – PEDRO CASTRO, CARL HAMILL, JOHN HARBER, CAMPBELL R. HARVEY, and OTTO VAN HEMERT

One of the foundational decisions that asset owners need to make is whether to hedge the FX exposure of their international assets. Often an investment committee will come up with a broad policy such as fully hedging FX for foreign investments. This is often motivated by portfolio risk minimization because adding FX risk can make portfolio returns more volatile. It is also sometimes motivated by the fact that a global equity manager has no particular expertise in timing FX exposures so, it is argued, that risk should be expunged.