Discussion Paper Details

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Title: On the Rewards to International Investing: A Safe Haven Currency Perspective

Author(s): Jean-Pierre Danthine and Samuel Danthine

Publication Date: April 2017

Keyword(s): currency hedging, Safe haven currency and uncovered interest parity

Programme Area(s): Financial Economics and International Macroeconomics and Finance

Abstract: The safe haven property of the Swiss franc presents a specific challenge for Swiss-based investors in their international investments. The central issue is whether the traditional under-performance of Swiss assets is compensated by the currency risk associated with the safe haven and the secular appreciation tendency of the franc. In this paper we review the evidence on the terms of this challenge. We conclude that long-run Swiss-based investors are well compensated for the currency risks they take on, that a Swiss-bias in asset allocation can lead to considerable return shortfalls over the long run, and that systematic currency hedging would not have been historically justified and is unlikely to be in the future.

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Bibliographic Reference

Danthine, J and Danthine, S. 2017. 'On the Rewards to International Investing: A Safe Haven Currency Perspective'. London, Centre for Economic Policy Research.