Optimal close-to-home biases in asset allocation

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dc.contributor.authorVaras, Felipe
dc.contributor.authorWalker, Eduardo
dc.date.accessioned2024-01-10T12:07:14Z
dc.date.available2024-01-10T12:07:14Z
dc.date.issued2011
dc.description.abstractThis article studies optimal portfolio decisions with (long-term) liabilities for small open economy based investors, including the optimality of currency hedging (Walker (2008a). Chile is the home country of the representative investor, but results are likely to hold more generally. The problem is set up as in Sharpe and Tint (1990) and Hoevenaars, Molenaar, Schotman and Steenkamp (2007). Hedging the liabilities and the consumption currency may imply optimal close-to-home biases, defined as overweighting asset classes which are highly correlated with local ones. The implementation challenges include: developing a methodology to estimate expected returns in local (real) currency; estimating the covariance matrix allowing for serial and crossed-serial correlations; and checking the results' robustness using a resampling method. The findings are: (i) portfolios always have optimal close-to-home biases, beyond the investment in local fixed income to hedge liabilities; (ii) currency hedging reduces investment in close-to-home asset classes, (iii) but has ambiguous effects on welfare detected with the resampling method; (iv) currency hedged long-term US bonds are useful for hedging local interest rate risk; and (v) liabilities give access to high risk-return portfolios, not affecting otherwise the overall shape of the efficient regions. This article can be useful to investors based on small open economies, including pension funds, insurance companies, sovereign wealth funds and Central Banks. (C) 2009 Published by Elsevier Inc.
dc.fechaingreso.objetodigital27-03-2024
dc.format.extent10 páginas
dc.fuente.origenWOS
dc.identifier.doi10.1016/j.jbusres.2009.11.021
dc.identifier.eissn1873-7978
dc.identifier.issn0148-2963
dc.identifier.urihttps://doi.org/10.1016/j.jbusres.2009.11.021
dc.identifier.urihttps://repositorio.uc.cl/handle/11534/76259
dc.identifier.wosidWOS:000287561900016
dc.information.autorucEscuela de Administración;Walker E ;S/I;59879
dc.issue.numero3
dc.language.isoen
dc.nota.accesocontenido parcial
dc.pagina.final337
dc.pagina.inicio328
dc.publisherELSEVIER SCIENCE INC
dc.revistaJOURNAL OF BUSINESS RESEARCH
dc.rightsacceso restringido
dc.subjectAsset allocation
dc.subjectHedging
dc.subjectLiabilities
dc.subjectResampling
dc.subjectHome bias
dc.subjectInterest rate risk
dc.subjectCurrency risk
dc.subjectSmall open economies
dc.subjectEmerging markets
dc.subjectChile
dc.subjectTERM STRUCTURE
dc.subjectMARKET
dc.subjectRISK
dc.subject.ods08 Decent Work and Economic Growth
dc.subject.odspa08 Trabajo decente y crecimiento económico
dc.titleOptimal close-to-home biases in asset allocation
dc.typeartículo
dc.volumen64
sipa.codpersvinculados59879
sipa.indexWOS
sipa.indexScopus
sipa.trazabilidadCarga SIPA;09-01-2024
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