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On the rewards to international investing: a safe haven currency perspective

Author

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  • Jean-Pierre Danthine

    (CEPR - Center for Economic Policy Research - CEPR, PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Samuel Danthine

    (ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information - Ensai, Ecole Nationale de la Statistique et de l'Analyse de l'Information)

Abstract

The safe haven property of the Swiss franc presents a specific challenge for internationally minded Swiss-based investors. The central issue is whether the traditional under-performance of Swiss assets is made up by the secular appreciation of the Swiss franc combined with the propensity of the safe haven to strengthen in times of market stress. In this paper, we review the evidence on the terms of this challenge. We conclude 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. Assuming a fair amount of currency risk thus appears inevitable for long-run Swiss-based investors.

Suggested Citation

  • Jean-Pierre Danthine & Samuel Danthine, 2018. "On the rewards to international investing: a safe haven currency perspective," Post-Print halshs-01884319, HAL.
  • Handle: RePEc:hal:journl:halshs-01884319
    DOI: 10.1186/s41937-017-0005-8
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01884319
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    References listed on IDEAS

    as
    1. Peter Kugler & Beatrice Weder, 2004. "International Portfolio Holdings and Swiss Franc Asset Returns," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 301-325, September.
    2. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
    3. Ernst Baltensperger & Peter Kugler, 2016. "The historical origins of the safe haven status of the Swiss franc:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(02), pages 1-30, August.
    4. Peter Kugler & Beatrice Weder, 2004. "International Portfolio Holdings and Swiss Franc Asset Returns," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 301-325, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Uncovered interest parity; Safe haven currency; Currency hedging;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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