Hedging Currency Risk: Does it Have to Be so Complicated?

36 Pages Posted: 28 Feb 2003

See all articles by Thomas Haefliger

Thomas Haefliger

Pictet Stategic Advisory Group

Daniel Wydler

Bank Von Graffenried AG

Urs Waelchli

Rochester-Bern Executive Programs; University of Rochester - Simon Business School

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

Haefliger, Thomas and Wydler, Daniel and Waelchli, Urs, Hedging Currency Risk: Does it Have to Be so Complicated? (December 5, 2002). Available at SSRN: https://ssrn.com/abstract=363080 or http://dx.doi.org/10.2139/ssrn.363080

Thomas Haefliger

Pictet Stategic Advisory Group ( email )

Bärengasse 25
CH-8001 Zurich
Switzerland
+41 (0)58 323 78 88 (Phone)

HOME PAGE: http://www.pictet.com/en/About/contact/contact9/thomas.html

Daniel Wydler (Contact Author)

Bank Von Graffenried AG ( email )

Marktgasspassage 3
3007 Bern BE
Switzerland

Urs Waelchli

Rochester-Bern Executive Programs ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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