Conditional currency hedging

Melk C. Bucher

Financial Management, 2020, vol. 49, issue 4, 897-923

Abstract: I propose a simple and robust approach to hedge currency risk that can be directly applied by international investors in diverse asset classes. Compared to current mean‐variance approaches, it is robust to overfitting and thus better anticipates risk‐minimizing currency positions for global equity, bond, and commodity investors out of sample. Furthermore, correlations among currencies, equities, and commodities can be predicted by lagged implied foreign exchange volatility. This allows investors to dynamically adjust their hedges, resulting in significantly lower risk compared to other hedging alternatives while maintaining or even improving Sharpe ratio, particularly during crisis periods.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/fima.12287

Related works:
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:bla:finmgt:v:49:y:2020:i:4:p:897-923

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0046-3892

Access Statistics for this article

Financial Management is currently edited by William G. Christie

More articles in Financial Management from Financial Management Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().