FX-hedging for Latin American investors

Rodrigo Alfaro and Natan Goldberger

Emerging Markets Review, 2024, vol. 59, issue C

Abstract: In this paper, we conduct an empirical evaluation of currency hedging (FXH) strategies designed for Latin American investors managing portfolios of US assets with performance measured in their local currency. By analyzing the volatility and value-at-risk (VaR) of the hedged portfolio, our results reveal that FXH is inefficient in lowering portfolio risk when applied to underlying foreign risk-assets like equities and low credit quality corporate bonds. Conversely, a significant reduction in volatility is evident with FXH when the investments are in safer assets, such as high-grade government and corporate bonds.

Keywords: Portfolio choice; Foreign exchange hedging; Natural hedge (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:59:y:2024:i:c:s1566014124000128

DOI: 10.1016/j.ememar.2024.101117

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