On the rewards to international investing: a safe haven currency perspective

Abstract

The safe haven property of the Swiss franc presents a specific challenge for internationally minded Swiss-based investors. The central issue is whether the traditional under-performance of Swiss assets is made up by the secular appreciation of the Swiss franc combined with the propensity of the safe haven to strengthen in times of market stress. In this paper, we review the evidence on the terms of this challenge. We conclude that a Swiss bias in asset allocation can lead to considerable return shortfalls over the long run and that systematic currency hedging would not have been historically justified and is unlikely to be in the future. Assuming a fair amount of currency risk thus appears inevitable for long-run Swiss-based investors.

Optimal Portfolio Allocation between Global Stock Indexes and Safe Haven Assets: Gold versus the Swiss Franc (1999–2021)

“…Turning to the Swiss Franc, many empirical contributions confirm earlier results, which provided large support to this currency as a safe haven asset in equity portfolios (see e.g., Kugler and Weder 2004;Campbell et al 2010;Ranaldo and Söderlind 2010). Danthine and Danthine (2017) maintain that long-run, Swiss-based, international investors benefit from the secular appreciation tendency of the Swiss currency, and this more than compensates for the traditional under-performance of Swiss-denominated asset returns. Lee (2017) applies Markov regime-switching vector autoregressive models to test whether six important currencies (Swiss Franc, Japanese Yen, British Pound, Euro, Canadian Dollar, and Norwegian Krone) are negatively related to risky assets (and whether this negative relation is stronger during "crisis" periods) and concludes that only the Swiss Franc and the Japanese Yen qualify as strong "safe havens".…”