An Empirical Study of Portfolio Selection for Optimally Hedged Portfolios

C. J. Adcock ()
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C. J. Adcock: The University of Sheffield, UK

Multinational Finance Journal, 2003, vol. 7, issue 1-2, 85-106

Abstract: This paper reports a study into the performance of currency-hedged portfolios constructed using mean-variance optimization methods. The method is to carry out optimization relative to a benchmark portfolio, which consists of the real assets, and simultaneously to determine the optimal exposures to each currency future. This is done at various levels of risk along the efficient frontier. A study into a portfolio of international stock and bond indices viewed from a US Dollar perspective indicates that, for the period studied, optimal currency hedging has the potential to add value in terms of additional expected return and excess return on a risk-adjusted basis. The results also demonstrate the superiority of strategies in which the hedge ratio is optimally determined over those with a fixed hedge ratio.

Keywords: exchange rate risk; currency hedging; mean-variance optimization (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:7:y:2003:i:1-2:p:85-106

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