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Abstract
We study how expanding the currency universe changes the risk-return trade-off. Performance improves beyond the G10, but the gains are concentrated in a small set of liquid, floating currencies. A mean-variance efficient portfolio formed from this set prices strategies from the full universe and outperforms them net of trading costs. Within this pricing set, Sharpe-ratio contributions are approximately flat across principal components, so large covariance directions command no more compensation than small ones. This structure explains why prominent currency strategies can contain large amounts of unpriced risk.
