DP11984 On the Rewards to International Investing: A Safe Haven Currency Perspective
|Author(s):||Jean-Pierre Danthine, Samuel Danthine|
|Publication Date:||April 2017|
|Keyword(s):||currency hedging, Safe haven currency, uncovered interest parity|
|JEL(s):||F30, F31, G11|
|Programme Areas:||Financial Economics, International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11984|
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.