Hedging Currency Risk: Does it Have to Be so Complicated?
36 Pages Posted: 28 Feb 2003
Date Written: December 5, 2002
Abstract
The question of whether foreign investments should be systematically hedged against currency risk has not been clearly answered to date. Numerous theoretical and empirical studies have provided contradictory conclusions. This paper examines to what extent foreign bonds and equities are exposed to currency risk. Risk and return of different strategies are aggregated over five reference currencies for a period from 1985 to 2000. The advantage of this method is that the results do not depend much on the time period chosen. Empirical evidence confirms the hypothesis that currency hedging should be fully applied to foreign bonds, whereas foreign equities should not or only be partially hedged.
JEL Classification: F30, F31, G11, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Change in Market Assessments of Deposit-Institution Riskiness
By Edward J. Kane and Haluk Unal
-
The Sensitivity of Bank Stock Returns to Market, Interest and Exchange Rate Risks
By Jongmoo Jay Choi, Elyas Elyasiani, ...
-
By Gary B. Gorton and Richard J. Rosen
-
By Elyas Elyasiani and Iqbal Mansur
-
Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
By Edward J. Kane and Haluk Unal
-
The Exchange Rate Exposure of U.S. And Japanese Banking Institutions
By Helen Popper, Sandra Chamberlain, ...
-
Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks
By Elyas Elyasiani and Jongmoo Jay Choi
-
Risk and Market Segmentation in Financial Intermediaries' Returns
By Linda Allen and Julapa Jagtiani