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Currency Hedging Over Long Horizons
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Book Synopsis Currency Hedging Over Long Horizons by : Kenneth Froot
Download or read book Currency Hedging Over Long Horizons written by Kenneth Froot and published by . This book was released on 1993 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reexamines the widely-held wisdom that the currency exposure of international investments should be entirely hedged. It finds that the previously documented ability of hedges to reduce portfolio return variance holds at short horizons, but not at long horizons. At horizons of several years, complete hedging not only does not lower return variance, it actually increases the return variance of many portfolios. Hedge ratios chosen to minimize long-run return variance are not only low, they also have no perceptible impact on return variance. The paper reports and explores these results, their apparent causes, and investigates their implications for hedging practice.
Book Synopsis Currency Hedging for International Portfolios by : Jochen M. Schmittmann
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.
Author :Bauer, Gregory Harvey Publisher :Ann Arbor, Mich. : University Microfilms International ISBN 13 : Total Pages :162 pages Book Rating :4.:/5 (244 download)
Book Synopsis Foreign Exchange Risk Premia Over Short and Long Horizons [microform] : Frequentist and Bayesian Perspectives by : Bauer, Gregory Harvey
Download or read book Foreign Exchange Risk Premia Over Short and Long Horizons [microform] : Frequentist and Bayesian Perspectives written by Bauer, Gregory Harvey and published by Ann Arbor, Mich. : University Microfilms International. This book was released on 2001 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Term Structure of Currency Hedge Ratios by : Olaf Korn
Download or read book The Term Structure of Currency Hedge Ratios written by Olaf Korn and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many firms face product price risk in foreign currency, uncertain costs in home currency and exchange rate risk. If prices and exchange rates in different countries interact, natural hedges of foreign exchange risk might result. If the effectiveness of such hedges depends on the hedge horizon, they might affect a firm's usage of foreign exchange derivatives at different horizons and lead to a term structure of optimal hedge ratios.We analyze this issue by deriving the variance minimizing hedge position in currency forward contracts within a basic model of an exporting firm that is exposed to different risks. In an empirical study, we quantify the term structure of hedge ratios for a quot;typicalquot; German firm that is exporting either to the United States, the United Kingdom or Japan, using a cointegrated vector autoregressive models of prices, interest rates and exchange rates.Our main empirical result shows that the term structure of hedge ratios is clearly decreasing for all currencies considered, going down to a half or less for a hedge horizon of ten years. We have found that one explanation is that revenue risk increases more strongly with the hedge horizon than does exchange rate risk. The main reason, however, lies in the correlation structure between different risks that varies with the hedge horizon due to cointegration relations; i.e., we observe natural hedges at long horizons. As a consequence, hedging effectiveness decreases much less with the hedge horizon than hedge ratios.For long horizons, there can also be substantial differences between currencies. For instance, the ten-years hedge ratio for the British Pound still amounts to 53% in comparison to 34% for the US Dollar. In contrast, the difference for shorter horizons of up to two years is very small.In conclusion, our findings can (partly) explain the severe underhedging of long-term exchange rate exposures that is frequently observed and have important implications for the design of risk management strategies.
Book Synopsis The Currency Hedging Debate by : Lee R. Thomas
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.
Book Synopsis Efficient Currency Hedging for Australian Superfunds by : Jie Ding
Download or read book Efficient Currency Hedging for Australian Superfunds written by Jie Ding and published by . This book was released on 2014 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedging reduces the volatility of the portfolio return when currency return and unhedged equity returns are negatively correlated. Australian dollar returns are highly negatively correlated with equity returns when the investment horizon is long. Hence as a long term benchmark, Australian superannuation funds should fully hedge the currency risk of their equity portfolio. Interest rate differentials and real exchange rates between Australian dollar and foreign currencies are found to be good indicators for an efficient dynamic hedging strategy in the short term.
Book Synopsis Foreign Currency Hedging by : Matthew Morey
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:
Book Synopsis Some Like It Hedged by : Momtchil Pojarliev
Download or read book Some Like It Hedged written by Momtchil Pojarliev and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Mastering Illiquidity by : Thomas Meyer
Download or read book Mastering Illiquidity written by Thomas Meyer and published by John Wiley & Sons. This book was released on 2013-04-18 with total page 309 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arms investors with powerful new tools for measuring and managing the risks associated with the various illiquid asset classes With risk-free interest rates and risk premiums at record lows, many investors are turning to illiquid assets, such as real estate, private equity, infrastructure and timber, in search of superior returns and greater portfolio diversity. But as many analysts, investors and wealth managers are discovering, such investments bring with them a unique set of risks that cannot be measured by standard asset allocation models. Written by a dream team of globally renowned experts in the field, this book provides a clear, accessible overview of illiquid fund investments, focusing on what the main risks of these asset classes are and how to measure those risks in today's regulatory environment. Provides solutions for institutional investors in need of guidance in today's regulatory environment Offers detailed descriptions of risk measurement in illiquid asset classes, illustrated with real life case studies Helps you to develop reliable risk management tools while complying with the regulations designed to contain the individual and systemic risks arising from illiquid investments Features real-life case studies that capture an array of risk management scenarios you are likely to encounter
Download or read book Currencies written by MSCI. Inc. and published by . This book was released on 2009 with total page 6 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the question of whether currency hedging pays off in the long run using data from the hedged and unhedged versions of the MSCI Global Investable Market Indices. These data allow us to perform comparisons of unusually large breadth (4 base currencies and 40 markets) and history (1987 to 2008). Our research indicates that the answer depends not only on the base currency, market, and hedging horizon, but also on the investor's goals, e.g. risk reduction or return/risk maximization.
Book Synopsis FX Funding Risks and Exchange Rate Volatility–Korea’s Case by : Mr.Jack Ree
Download or read book FX Funding Risks and Exchange Rate Volatility–Korea’s Case written by Mr.Jack Ree and published by International Monetary Fund. This book was released on 2012-11-07 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how exchange rate volatility and Korean banks’ foreign exchange liquidity mismatches interacted with each other during the Global Financial Crisis, and whether the vulnerability stemming from this interaction has been reduced since then. Structural and cyclical changes after the crisis, including decreasing demand for currency hedges and the diversifying investor base for bonds, point to a possible weakening of the interaction mechanism; and we find evidences are strongly supportive of this.
Book Synopsis International Finance by : Maurice D. Levi
Download or read book International Finance written by Maurice D. Levi and published by Routledge. This book was released on 2007-05-07 with total page 606 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this updated fourth edition, author Maurice Levi successfully integrates both the micro and macro aspects of international finance. He sucessfully explores managerial issues and focuses on problems arising from financial trading relations between nations, whilst covering key topics such as: * organization of foreign exchange markets * determination of exchange rates * the fundamental principles of international finance * foreign exchange risk and exposure * fixed and flexible exchange rates. This impressive new edition builds and improves upon the popular style and structure of the original. With new data, improved pedagogy, and coverage of all of the main developments in international finance over the last few years, this book will prove essential reading for students of economics and business.
Book Synopsis Currency Hedging by : Kelly H. Chang
Download or read book Currency Hedging written by Kelly H. Chang and published by . This book was released on 2009 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Research Insight examines the question of whether currency hedging is a 'free lunch' of risk reduction and zero expected returns. Using a long history of hedged and unhedged MSCI indices, we find that hedging does not always reduce risk, nor are mean returns zero. Contrary to some prior studies, we find there is no free lunch for the equity investor. Instead, we conclude that the usual, intuitive relationships hold: less risk usually means lower returns, and more risk, higher returns. Our research indicates that whether hedging pays off depends not only on the base currency, market, and hedging horizon, but also on the investor's goals of risk reduction or return/risk maximization.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Uncertain Growth Cycles, Corporate Investment, and Dynamic Hedging by : Adam Yonce
Download or read book Uncertain Growth Cycles, Corporate Investment, and Dynamic Hedging written by Adam Yonce and published by . This book was released on 2010 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the theory of finance, uncertainty plays a crucial role. Economists often use the terms uncertainty and volatility interchangeably, yet volatility is not the only form of uncertainty. Firms face uncertainty about whether the economy is in an expansionary or recessionary state, industries face regulatory uncertainty, and individuals face uncertainty about risk premia. In this dissertation, I consider the role that uncertainty about growth rates, regulatory policy, and risk premia play in the investment decisions of firms and individuals. The key theme linking the three chapters is learning in dynamic environments. In Chapter 1, I study the effects of demand growth uncertainty on corporate investment decisions. In particular, how does uncertainty about the state of the economy and the state of demand growth affect a firm's decision to allocate capital to irreversible investment projects? In the model, firms are able to choose both the timing and scale of their investments, and the optimal scale will depend on the unobserved state of demand growth. This second decision gives rise to an incentive to delay investment that does not exist in standard real option models: When investment is irreversible, firms risk allocating a sub-optimal level of capital to a project. Theoretically, I show how this incentive to delay is closely linked to the benefits of learning about the economy. Empirically, using estimated probabilities filtered from GDP growth, I find that 1) beliefs about the economy inform corporate investment decisions, and 2) the relationship between investment and beliefs is quadratic. In Chapter 2, I study an empirical extension of the model. Many industries in the United States face regulatory uncertainty, and a natural conjecture is that increased regulatory uncertainty has a dampening effect on investment if 1) regulatory policy affects the cash flows of the firm, 2) firms have flexibility over the scale of their investments, and 3) regulatory uncertainty resolves quickly. While regulatory uncertainty is not observable, I consider two proxies: A variable indicating Presidential election years, and a variable indicating divided government. The former is meant to capture policy uncertainty associated with the possibility of a change in government, while the latter is meant to capture policy uncertainty associated with ideological variance. Empirically, both measures are associated with a decrease in corporate investment rates, consistent with the theoretical framework. The second purpose of this chapter is to highlight the dangers of making inferences about investment using inconsistent estimators and regressions that fail to account for plausible alternative hypotheses. Previous work linking investment to the political cycle relies on least squares estimators that are inconsistent because the firm-specific control variables are endogenous to the investment decision. For a specific sub-sample of non-manufacturing firms, I show that least squares estimates easily reject the null hypothesis, while consistent first-difference estimates fail to do so. Finally, I include a control for the fiscal environment of the federal government, which helps to uncover important dynamics between investment, the budget deficit, and the election cycle. In chapter 3, I consider the currency hedging problem of a risk-averse international investor who faces an unobservable currency risk premium. A non-zero risk premium introduces a speculative motive for holding foreign currency in the optimal portfolio, and a time-varying risk premium introduces a market-timing strategy. Uncertainty about the stochastic properties of the risk premium significantly tames both the speculative and market timing components, especially at long investment horizons, and the optimal hedge approaches a complete hedge as risk aversion and the investment horizon increase. However, an investor who ignores the risk premium and fully hedges foreign investments faces a substantial opportunity cost because she forgoes the benefits of dynamic learning.
Book Synopsis Optimal Currency Hedging by : Nelson Arruda
Download or read book Optimal Currency Hedging written by Nelson Arruda and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Forecasting and Hedging in the Foreign Exchange Markets by : Christian Ullrich
Download or read book Forecasting and Hedging in the Foreign Exchange Markets written by Christian Ullrich and published by Springer Science & Business Media. This book was released on 2009-05-30 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: Historical and recent developments at international ?nancial markets show that it is easy to loose money, while it is dif?cult to predict future developments and op- mize decision-making towards maximizing returns and minimizing risk. One of the reasons of our inability to make reliable predictions and to make optimal decisions is the growing complexity of the global economy. This is especially true for the f- eign exchange market (FX market) which is considered as one of the largest and most liquid ?nancial markets. Its grade of ef?ciencyand its complexityis one of the starting points of this volume. From the high complexity of the FX market, Christian Ullrich deduces the - cessity to use tools from machine learning and arti?cial intelligence, e.g., support vector machines, and to combine such methods with sophisticated ?nancial mod- ing techniques. The suitability of this combination of ideas is demonstrated by an empirical study and by simulation. I am pleased to introduce this book to its - dience, hoping that it will provide the reader with interesting ideas to support the understanding of FX markets and to help to improve risk management in dif?cult times. Moreover, I hope that its publication will stimulate further research to contribute to the solution of the many open questions in this area.
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