Download or read book Optimal Currency Hedging for International Equity Portfolios written by Jacob Boudoukh and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore optimal currency exposures in international equity portfolios through the lens of a modified mean-variance optimization framework. We decompose the optimal currency portfolio into a “hedge portfolio” which minimizes equity volatility using a dynamic risk model and an “alpha seeking portfolio” based on the well-documented currency styles of value, momentum and carry. This is an integrated and economically intuitive approach to currency management that simultaneously provides lower risk and higher returns compared to both hedged and unhedged benchmarks. Crucially, the solution is practical with realistic and implementable leverage, turnover and tail risk characteristics.

Download or read book Universal Currency Hedging for International Equity Portfolios Under Parameter Uncertainty written by Glen A. Larsen and published by . This book was released on 1997 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Currency Hedging for International Portfolios written by Jochen M. Schmittmann and published by International Monetary Fund. This book was released on 2010-06-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the benefits from hedging the currency exposure of international investments in single- and multi-country equity and bond portfolios from the perspectives of German, Japanese, British and American investors. Over the period 1975 to 2009, hedging of currency risk substantially reduced the volatility of foreign investments at a quarterly investment horizon. Contrary to previous studies, the paper finds that at longer investment horizons of up to five years the case for hedging for risk reduction purposes remained strong.In addition to its impact on risk, hedging affected returns in economically meaningful magnitudes in some cases.

Download or read book The Optimal Construction of Internationally Diversified Equity Portfolios Hedged Against Exchange Rate Uncertainty written by Bruce G. Resnick and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Much of the empirical work on hedging exchange rate exposure in portfolios of financial assets has used a unitary hedge ratio, or a currency overlay. Alternatively, the currencies themselves can be treated as assets and the position in them optimized. This study empirically tests whether the ex post results of recent studies, which conclude that currencies should themselves be optimized, stand up under parameter uncertainty. It may very well be that ex ante, when parameter inputs must be estimated from historical data, the attempt to determine the optimal currency weights results in inferior performance in comparison to using a simple unitary hedging strategy, or even unhedged international investment. The results suggest that a local currency return unitary hedging strategy works best in the presence of parameter uncertainty.

Download or read book Currency Hedging for Global Equity Portfolios written by Anthony Seymour and published by . This book was released on 2017 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Offshore assets present investors with an increased investment universe and additional opportunities for reward, but embedded exposure to exchange rates can result in additional risk. In this work, we consider a global equity portfolio of five equity indices (US, Japan, Europe, UK and Canada), and examine the historical performance of currency hedging strategies in the context of portfolio risk reduction. Two types of scenario are studied; namely, a holding in a single foreign equity index, and a model global equity portfolio. In the case of the global equity portfolio, it is assumed that the allocations to the equities are fixed and exposures to currencies are solved for in a single combined optimization, taking into account all interactions between the equity indices and currencies.We show that a theoretical minimum-risk currency exposure level can be calculated which results in less risk than portfolios featuring either full or zero currency exposure. Furthermore, we show that the risk reduction achieved historically by following an easily implementable dynamic currency hedging strategy is comparable to that given by the theoretical, perfect knowledge calculations. Given our focus on minimum-risk hedging strategies, we find that using certain hedging instruments can slightly reduce total portfolio returns. However, in all cases the significant reduction in volatility always leads to superior risk-adjusted returns for the global equity portfolios. Moreover, certain hedging instruments in our historical tests do actually provide both risk reduction and return enhancement.

Download or read book The International Diversification Puzzle when Goods Prices Are Sticky written by Mr.Charles Engel and published by International Monetary Fund. This book was released on 2009-01-01 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some nominal goods prices are sticky. Trade in these assets achieves the same allocations as trade in a complete set of nominal state-contingent claims in our linearized model. When there is a high degree of price stickiness, we show that not much equity diversification is required to replicate the complete-markets equilibrium when agents are able to hedge foreign exchange risk sufficiently. Moreover, temporarily sticky nominal goods prices can have large effects on equity portfolios even when dividend processes are very persistent.

Download or read book International Equity Investment with Selective Hedging Strategies written by Cheol S. Eun and published by . This book was released on 1996 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Some Like It Hedged written by Momtchil Pojarliev and published by CFA Institute Research Foundation. This book was released on 2018-11-07 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Foreign currency exposure is a by-product of international investing. When obtaining global asset exposure, investors also obtain the embedded foreign currency exposure. Left unmanaged, this currency exposure acts like a buy-and-hold currency strategy, which receives little or no risk premium and adds unwanted volatility. In “Some Like It Hedged,” the author shows that the impact of foreign currency exposure on institutional portfolios depends significantly on the base currency of the investors and the specific composition of their portfolios. In general, investors whose base currency is negatively correlated with global equities, as are the US dollar and the Japanese yen, will reduce the volatility of their portfolios by fully hedging foreign currency exposure. In contrast, investors whose home currency is positively correlated with global equities, as is the Canadian dollar, will benefit from keeping some unhedged foreign currency exposure—in particular, exposure to the US dollar. Finally, investors with larger allocations to domestic assets will experience only small reductions in volatility from hedging. Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices. Do nothing (i.e., maintain unhedged foreign currency exposure). Doing nothing is always the easiest option, but from a risk–return perspective, it could be the worst available choice. Currency has no long-term expected return because, although it is a risk exposure, it is not an economic asset. Hence, long-term currency returns are expected to be zero. Hedging should, therefore, have no long-term impact on the return and only affect the volatility. The volatility reduction from hedging can be redeployed more efficiently by increasing exposure to economic assets for which a risk premium exists. Hedge passively (i.e., maintain a constant hedge ratio).In general, hedging some of the foreign currency risk will decrease the volatility of the portfolio. The relationship between a specific hedge ratio and the decrease in volatility depends on the particular portfolio and, most importantly, on the base currency of the investor. Yet, passive hedging creates its own problems, including negative cash flow generation when foreign currencies are appreciating and detraction from returns because of hedging costs. Passive hedging might also introduce a major market-timing risk. If the base currency weakens after a passive policy is implemented, the investor will suffer substantial hedging losses when the forward currency hedging contracts settle. Hedge actively (i.e., vary the hedge ratio). One way to address the market-timing risk of implementing a passive hedging program is to actively time the hedging of the foreign currencies. An active hedging program seeks to reduce the risk of the foreign currency exposure but varies the hedge ratios for the various currencies based on market views to avoid negative cash flow and to generate positive returns. A successful active hedging program should both add to the return of the portfolio and lower the volatility, and it should outperform both an unhedged and a passive hedging benchmark. The best choice to address foreign currency exposure will differ from institution to institution, but it boils down to two fundamental factors. First, the optimal solution depends on the importance of risk versus return and the institution’s tolerance for negative cash flow. Second, investors must decide whether they believe that currency managers are able to achieve a positive information ratio over the long run after fees and, importantly, whether they will be able to identify these currency managers. Any currency policy will depend on the details of the specific portfolio—in particular, on the base currency of the investor and the size of the foreign currency exposure.

Download or read book International Equity Portfolios and Currency Hedging the Viewpoint of German and Hungarian Investors written by Raimond Maurer and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Foreign Currency Hedging written by Matthew Morey and published by . This book was released on 1995 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book To Hedge Or Not to Hedge written by Marco Aiolfi and published by . This book was released on 2017 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The decision to manage currencies in international equity portfolios is a complex one, and is intrinsically related to the final objective of the investor, whether it is risk reduction, or improvement in risk adjusted returns. In the absence of a confident view on the direction of foreign currency, a risk averse investor might choose to just hedge the currency exposure of her portfolios. On the other hand, there are well documented risk premia within the broader currency market that offer positive expected returns. An active investor can benefit from such risk premia and use currencies as a source of portable alpha to generate additional source of risk adjusted returns, above and beyond what a hedged equity portfolio could provide.

Download or read book International Equity Portfolios and Currency Hedging written by Gyöngyi Bugar and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Currency Hedging Debate written by Lee R. Thomas and published by Ifr Publishing. This book was released on 1990 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: This title provides a forum for the discussion surrounding the use of currency hedging for portfolio managment and examines the arguments for the different hedging techniques. The main arguments are outlined with contributions from both academics and practitioners. The evidence on the performance of various funds is examined in detail.

Download or read book International Equity Portfolios Hedged Against Exchange Rate Uncertainty written by Marcel Fuchs and published by . This book was released on 2014 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Currency Hedging Strategies for Internationally Diversified Equity Portfolios written by Mark R. Eaker and published by . This book was released on 1990 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Safety First Diversification and Currency Hedging in International Portfolios written by Dennis W. Jansen and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper looks at currency hedging and international diversification of equity portfolios from a safety first perspective. We modify Arzac and Bawa's (1977) version of the Roy's safety first criterion and show how it can be successfully improved upon by exploiting the fat tail property of asset returns and the statistical theory of extremes. The latter provides a much sharper bound on the probability of disastrous returns than does the Chebyshev bound. We look at currency hedging for a portfolio of international currencies without regard for the underlying investment, and find relatively high levels of hedging. Then we look at currency hedging for a given international equity portfolio and find lower hedge ratios, showing a portfolio effect of international diversification in reducing risk of currency movements. Finally, we look at joint optimization of portfolio composition and hedging, and find further evidence of portfolio effects between equity returns in local currency and exchange rate movements.

Download or read book An Algorithm for International Portfolio Selection and Optimal Currency Hedging written by Markus Rudolf and published by . This book was released on 1994 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: