RT Journal Article
SR Electronic
T1 What Is Missing in Common Minimum Volatility<br/>Strategies? <em>The Ignored Impact of Currency Risk</em>
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 77
OP 88
DO 10.3905/jii.2017.8.2.077
VO 8
IS 2
A1 Nick Alonso
A1 Mark Barnes
YR 2017
UL https://pm-research.com/content/8/2/77.abstract
AB Many investors that adopt minimum volatility strategies are inadvertently allowing unnecessary volatility in their minimum volatility allocations by ignoring the underlying currency assumptions used in building their portfolios. Specifically, portfolio country weights can vary widely depending on the currency used in calculating risk. In this article, the authors provide empirical evidence that the currency of the risk calculation should match the currency used in evaluating the portfolio’s performance. In practice, many investors are well aware of the latter but unaware of the former, which can be embedded in commonly available benchmarks and investment vehicles. Any mismatch can lead to increased volatility.TOPICS: Analysis of individual factors/risk premia, portfolio construction, volatility measures