Q12C, exam 2005. “A fully hedging approach is more appropriate than a no hedging approach for an investor who has a long-term liability structure.” Incorrect because: “There is substantial evidence that hedged stocks are more volatile over long time horizons than unhedged stocks.” Why? - sticky
Since it’s related to currencies, currency risk reduces as the time horizon increases. Hence, it’s not necessary to hedge the currency risk.
CareerChange Wrote: ------------------------------------------------------- > Since it’s related to currencies, currency risk > reduces as the time horizon increases. Hence, it’s > not necessary to hedge the currency risk. I understand this. I am asking why hedged stocks more volatile over long time horizons than unhedged stocks? - sticky