Foreign Currency Exposure within Country Exchange Traded Funds

This paper considers the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. The study shows that, while U.S.‐domiciled country ETFs are more efficient than their European counterparts, volatility of the underlying foreign currency is the most significant source of tracking error for all funds relative to the local benchmark index. To better align ETF and index performance, the net currency variance is calculated for each sample fund to approximate the volatility impact from hedging the underlying currency exposure. As an essential element in risk reduction is to avoid incurring an offsetting drop in returns, the study finally calculates an optimal hedge ratio to give further insight to investors who use these products.

並列關鍵字

Exchange Traded Funds ； Currency Hedging ； Portfolio Management ； Risk Management

國際替代計量

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