Safe haven currencies: a portfolio perspective

Gino Cenedese (gino.cenedese@fulcrumasset.com)

No 533, Bank of England working papers from Bank of England

Abstract: Currency portfolios exhibit asymmetric correlations: during periods of bear, volatile world equity markets, currency portfolios provide different hedging benefits than in bull markets. I show how these time-varying hedging benefits depend on currency characteristics. This paper also illustrates how the presence of regime shifts in financial markets affects optimal portfolio choice across currency portfolios: during bear markets, investors are better off by unwinding carry trade positions, and by following currency momentum. Also, diversification benefits increase by holding undervalued currencies and currencies of countries with strong current accounts and international investment positions.

Keywords: Foreign exchange; safe haven currencies; portfolio choice; uncovered interest rate parity; carry trade; purchasing power parity; Markov-switching. (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-07-17
New Economics Papers: this item is included in nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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