Strategic currency hedging and global portfolio investments upside down

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dc.contributor.authorWalker, Eduardo
dc.date.accessioned2025-01-21T01:05:04Z
dc.date.available2025-01-21T01:05:04Z
dc.date.issued2008
dc.description.abstractThe literature on the convenience of currency hedging of international portfolio investments has not reached a final verdict. There are arguments for (Perold and Schulman [Perold, A.F. and Schulman, E.C. (1988). The free lunch in currency hedging: implications for investment policy and performance standards, Financial Analysts Journal, May/June Vol. 44, No. 3: 45-52]) and against (Froot [Froot, K. (1993). Currency hedging over long horizons. NBER Working Paper 4355.] and Campbell et al. [Campbell, J.Y., Viceira, L.M. and White, J.S. (2003). Foreign currency for long-term investors. The Economic Journal, Volume 113, Number 486, (March), pp. C1-C25(1)]). This paper analyzes the perspective of global investors based in emerging markets, for which hedging should imply increasing expected returns. The question thus is whether currency hedging is a "free lunch" in this case. No free lunch exists, as it turns out. Hard currencies act as natural hedges against global (and local) portfolio losses, since they tend to appreciate with respect to emerging market currencies when the world portfolio return is negative. Therefore, in this case currency hedging increases volatility-although also increasing expected returns. This result is likely to hold generally for relatively open economies with flexible exchange rate regimes. (C) 2007 Published by Elsevier Inc.
dc.fuente.origenWOS
dc.identifier.doi10.1016/j.jbusres.2007.06.041
dc.identifier.eissn1873-7978
dc.identifier.issn0148-2963
dc.identifier.urihttps://doi.org/10.1016/j.jbusres.2007.06.041
dc.identifier.urihttps://repositorio.uc.cl/handle/11534/95807
dc.identifier.wosidWOS:000255814000011
dc.issue.numero6
dc.language.isoen
dc.pagina.final668
dc.pagina.inicio657
dc.revistaJournal of business research
dc.rightsacceso restringido
dc.subjecthedging
dc.subjectcurrency risk
dc.subjectglobal equity
dc.subjectemerging markets
dc.subjectportfolio choice
dc.subject.ods08 Decent Work and Economic Growth
dc.subject.odspa08 Trabajo decente y crecimiento económico
dc.titleStrategic currency hedging and global portfolio investments upside down
dc.typeartículo
dc.volumen61
sipa.indexWOS
sipa.trazabilidadWOS;2025-01-12
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