Is currency factor important for global portfolios?

We investigate whether cross-country diversification, particularly into emerging markets, has an impact on the pricing of exchange risk for globally diversified portfolios. Our empirical tests based on a conditional IAPM show that the price of exchange risk is highly significant in global sector portfolios that include only developed countries. In contrast, when we include emerging markets with the developed market assets, the hypothesis of zero price of exchange risk cannot be rejected. Also, global sector portfolios that include EM assets show lower currency beta and lower contribution of the currency premium on average. The reduction in the contribution of the currency premium is specifically important in periods of crises.