Striking a Balance: The Optimal Hedging Ratio and Cost Trade-Offs in Global Currency Risk Management

  • Luis ViceiraHarvard University
  • Sally Shen, Global Risk Institute
Several pieces of Canadian money in a pile


This paper explores the effectiveness of global currency hedging, examining its benefits in reducing risk and cost efficiency. Research reveals that while currency hedging can mitigate volatility and minimize downside risk, it can also incur costs, especially in emerging markets. Additionally, the success of hedging strategies depends on market conditions, and different approaches may be more suitable for specific asset classes. Our findings provide valuable insights for investors seeking to optimize their currency hedging decisions in international portfolios. Through an extensive historical analysis of market rates, currency hedging strategies, and portfolio returns from January 1975 to October 2021, encompassing Canada, the United States, the United Kingdom, Germany, Japan, Australia, China, Brazil, and India, this study offers comprehensive and relevant information.