Currency Hedging over Long Horizons

Kenneth Froot

No 4355, NBER Working Papers from National Bureau of Economic Research, Inc

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 long-run 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: 1993-05
Note: ITI IFM AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Published as Kenneth A. Froot, 2019. "Currency Hedging Over Long Horizons," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 37-66, May.

Downloads: (external link)
http://www.nber.org/papers/w4355.pdf (application/pdf)

Related works:
Journal Article: Currency Hedging Over Long Horizons (2019)
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:nbr:nberwo:4355

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w4355

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().