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August 6, 2026The Journal of Portfolio Management

Optimal Currency Exposure When Interest Parity Fails

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Authors

LVLuis M. ViceiraSSSally Shen

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Overview

Article examines currency exposure strategies for equity and bond investors, suggesting effective hedging tactics.

Key Points

  • This article aims to determine optimal currency exposure for US and Canadian investors by analyzing market behaviors across various currencies.
  • Analyzed currency behaviors from 1975 to 2023 across developed and emerging markets.
  • Considered both covered and uncovered interest parity for currency hedging strategies.
  • Evaluated the impact of commodity-producing economies on currency depreciation.
  • US dollar and euro are optimal for risk minimization, appreciating during equity market declines.
  • Emerging market currencies can provide positive expected returns when interest parity deviates.
  • Effective currency policies must balance risk reduction with potential return enhancement.

Cite This Study

Viceira et al. (2026) studied this question.

synapsesocial.com/papers/6a743783764cddc9499d4e57https://doi.org/10.3905/jpm.2026.049
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Also Consider

Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context:

  1. 1The Hedging Cost of Forgetting the Exchange Rate2026
  2. 2The Effects of U.S. Monetary Policy Shocks on Portfolio Diversification2026
  3. 3Cross-country spillover effects of interest rate and credit constraint policies2024
  4. 4Currency market reactions to U.S. tariff shocks: cross-country evidence from the 2025 trade announcement2026 · 1 citations
  5. 5The Role of Key Factors in the Relationship Between Exchange Rate and Stock Market2026 · 1 citations