Towards Greater Diversification in Central Bank Reserves

Marie Brière, Kim Oosterlinck, Ariane Szafarz and Valérie Mignon ()
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Marie Brière: LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres

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Abstract: This article compares the performance of various diversification strategies regarding foreign exchange reserves. The aim is to provide central banks with guidelines in portfolio allocation. We pay particular attention to the situation of upward pressures on US interest rates by implementing our analysis over both the whole 1986–2015 period and a rising rate subsample. Relying on geometric tests of mean-variance efficiency, we show that introducing currencies weakly correlated to the USD (AUD and CAD) significantly reduces portfolio risk. Expected return is improved through mortgage-backed securities, corporate bonds and equities.

Keywords: foreign exchange reserves; diversification; asset allocation (search for similar items in EconPapers)
Date: 2016
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Published in Journal of Asset Management, 2016, 17 (4), pp.295 - 312. ⟨10.1057/jam.2016.14⟩

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Related works:
Journal Article: Towards greater diversification in central bank reserves (2016)
Working Paper: Towards Greater Diversification in Central Bank Reserves (2016)
Working Paper: Towards Greater Diversification in Central Bank Reserves (2015)
Working Paper: Towards Greater Diversification in Central Bank Reserves (2015)
Working Paper: Towards Greater Diversification in Central Bank Reserves (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02315436

DOI: 10.1057/jam.2016.14

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