Currency Hedging for International Portfolios

Currency Hedging for International Portfolios

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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.There are, however, also a few cases where over-hedging is potentially an effective risk minimizing strategy at long horizons. Foreign investments in the Japanese stock market stand out in this respect. The explanation appears to lie in theanbsp;...

Title:Currency Hedging for International Portfolios
Author:Jochen M. Schmittmann
Publisher:International Monetary Fund - 2010-06-01


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