Fund-Level FX Hedging Redux

Leonie Bräuer and Harald Hau

No 24-103, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using comprehensive new contract level data (EMIR) for the period 2019-2023, we explore how the FX derivative trading by European funds compares to a feasible theoretical benchmark of optimal hedging. We find that hedging behavior by all fund types is often partial, unitary (i.e., with a single currency focus), and sub-optimal. Overall, the observed FX derivative trading does not significantly reduce the return risk of the average European investment funds, even though optimal hedging strategies could do so without incurring substantial trading costs.

Keywords: Global Currency Hedging; Institutional Investors; Mean-Variance Optimization (search for similar items in EconPapers)
JEL-codes: E44 F31 F32 G11 G15 G23 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2024-11
New Economics Papers: this item is included in nep-mon and nep-rmg
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Working Paper: Fund-Level FX Hedging Redux (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp24103

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