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 identify the role of foreign currency as an important risk factor from an international investor’s point of view.

Share and Cite:

J. Witte, D. Ples and J. Corominas, "The Hidden Risk Factor," Journal of Mathematical Finance, Vol. 3 No. 3A, 2013, pp. 21-26. doi: 10.4236/jmf.2013.33A003.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] S. Page and M. Taborsky, “The Myth of Diversification: Risk Factors versus Asset Classes,” Journal of Portfolio Management, Vol. 37, No. 4, 2011, pp. 1-2.
[2] D. Rosen and D. Saunders, “Risk Factor Contributions in Portfolio Credit Risk Models,” Journal of Banking and Finance, Vol. 34, No. 2, 2010, pp. 336-349.
[3] J. Lintner, “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets,” The Review of Economics and Statistics, Vol. 47, No. 1, 1965, pp. 13-39.
[4] O. Ruban and D. Melas, “Risk Parity Portfolios: Rebalance, Leverage, Or Both?” The Journal of Investing, Vol. 20, No. 1, 2011, pp. 99-108.
[5] H. M. Markowitz, “Portfolio Selection,” The Journal of Finance, Vol. 7, No. 1, 1952, pp. 77-91.
[6] H. M. Markowitz, “Portfolio Selection: Efficient Diversification of Investments,” John Wiley & Sons, New York, 1958.
[7] J. Diermeier and B. Solnik, “Global Pricing of Equity,” Financial Analysts Journal, Vol. 57, No. 4, 2001, pp. 37-47.
[8] J.-F. L’Her, O. Sy and M. Y. Tnan, “Country, Industry, and Risk Factor Loadings in Portfolio Management,” The Journal of Portfolio Management, Vol. 28, No. 4, 2002, pp. 70-79.
[9] G. De Santis and B. Gerard, “How Big Is the Premium for Currency Risk?” Journal of Financial Economics, Vol. 49, No. 3, 1998, pp. 375-412.
[10] A. S. Cherny and D. B. Madan, “Coherent Measurement of Factor Risks,” 2006.
[11] J. Bender, R. Briand, F. Nielsen and D. Stefek, “Portfolio of Risk Premia: A New Approach to Diversification,” The Journal of Portfolio Management, Vol. 36, No. 2, 2010, pp. 17-25.
[12] S. Maillard, T. Roncalli and J. Teiletche, “On the Properties of Equally-Weighted Risk Contributions Portfolios,” The Journal of Portfolio Management, Vol. 36, No. 4, 2010, pp. 60-70.
[13] MSCI Barra, “Barra Risk Model Handbook,” 2007.
[14] C. R. Harvey, “The Risk Exposure of Emerging Equity Markets,” The World Bank Economic Review, Vol. 9, No. 1, 1993, pp. 19-50.

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.