Currency Management by International Fixed Income Mutual Funds

Clemens Sialm and Qifei Zhu

No 29082, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Investments in international fixed income securities are exposed to significant currency risks. We collect novel data on mutual fund currency derivatives and document that around 90% of U.S. international fixed income funds use currency forwards to manage their foreign exchange exposure. Funds' currency forward positions differ substantially based on risk management demands related to portfolio currency exposures, return-enhancement motives such as currency momentum and carry trade, and strategic considerations related to past performance and fund clienteles. Funds that hedge their currency risk exhibit lower return variability, but do not generate inferior abnormal returns.

JEL-codes: F21 F31 F34 G11 G12 G13 G15 G23 G32 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-fmk, nep-ifn, nep-isf, nep-opm and nep-rmg
Note: AP CF IFM ITI
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Journal Article: Currency Management by International Fixed‐Income Mutual Funds (2024)
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