Quants find hidden currency risk in domestic stocks

Pure exposure to home equities harder to isolate than previously thought, new paper says

Currency risk
Investors in single-country stocks might be taking more currency risk than they think

“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 equi

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