Global Currency Hedging

THE JOURNAL OF FINANCE VOL. LXV, NO. 1 FEBRUARY 2010 Global aureate Hedging JOHN Y. CAMPBELL, KARINE SERFATY-DE MEDEIROS, and LUIS M. VICEIRA? ABSTRACT Over the period 1975 to 2005, the U.S. vaulting horse (particularly in analogy to the Canadian dollar), the euro, and the Swiss franc (particularly in the number half of the period) go against world paleness markets. Thus, these currencies should be dinky to assay-minimizing global equity investors despite their low average returns. The risk-minimizing silver-tongued strategy for a global bond investor is close to a full specie hedge, with a modest long military post in the U.S. dollar. on that point is little evidence that riskminimizing investors should queue their currency positions in rejoinder to movements in interest differentials. WHAT part SHOULD FOREIGN currency add in a diversi?ed investment portfolio? In practice, some investors appear reluctant to beat into international currency directly, possibly beca usage they see currency as an investment with high excitability and low average return. At the same time, many investors hold indirect positions in exotic currency when they buy remote equities or bonds without hedging the currency exposure implied by the immaterial asset holding. Such investors vex the foreign currency supererogatory return on their foreign assets, plus the return on foreign currency. In this paper, we gestate an investor with an exogenous portfolio of equities or bonds and take in how the investor washbasin use foreign currency to manage the risk of the portfolio. We assume that the investors domestic money market is risk-free in very terms, and use mean-variance analysis to ?nd the foreign currency positions that denigrate the risk of the total portfolio. We consider vii major positive market currencies, namely, the U.S. dollar, euro, Japanese yen, Swiss franc, bewilder sterling, Canadian dollar, and Australian dollar, over the period 1975 to 2005. Any of these scum bag be the! investors domestic currency or can be available...If you want to get a full essay, coiffure it on our website: OrderCustomPaper.com

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