Currency Hedging Over Long Horizons

Kenneth Froot

Annals of Economics and Finance, 2019, vol. 20, issue 1, 37-66

Abstract: This paper reexamines the widely-held wisdom that the currency exposure of international investments should be entirely hedged. It finds that the previously-documented ability of hedges to reduce portfolio return variance holds at short horizons, but not at long horizons. At horizons of several years, complete hedging not only does not lower return variance, it actually increases the return variance of many portfolios. Hedge ratios chosen to minimize longrun return variance are not only low, they also have no perceptible impact on return variance. The paper reports and explores these results, their apparent causes, and investigates their implications for hedging practice.

Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://down.aefweb.net/AefArticles/aef200102Froot.pdf (application/pdf)

Related works:
Working Paper: Currency Hedging over Long Horizons (1993)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2019:v:20:i:1:froot

Access Statistics for this article

Annals of Economics and Finance is currently edited by Heng-fu Zou

More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().