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White Papers

The hidden risk factor

To achieve maximum returns consistent with an investor's appetite for risk, the correct identification and estimation of all relevant risk factors in a portfolio are necessary. In this paper, we show that currency is an important risk factor to an international investor, and we emphasise that any change in an investor's international currency position may increase or decrease the total portfolio risk, depending on market circumstances. Therefore, the re- ward/risk ratio induced by currency, in line with classic risk factors such as equities, inflation, and credit, has to be regarded as indicative for investment performance. In particular, we attempt to quantify the extent to which such change would impact portfolio risk.

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All white papers posted were created by the listed authors who are solely responsible for the research, finding and all materials contained therein. Pensions & Investments has not verified or edited the materials (other than for length and style) and does not necessarily agree or disagree with the analysis and positions expressed by the authors. Reference to any company, product or service does not imply recommendation or sponsorship by Pensions & Investments.

For more information on submitting a white paper, please contact Richard Scanlon at rscanlon@pionline.com or 212-210-0157.