Currency hedging failure in international equity investments and an efficient hedging strategy: The perspective of Korean investors

Sangwon Suh

Pacific-Basin Finance Journal, 2011, vol. 19, issue 4, 390-403

Abstract: Korean fund investors suffered significant financial losses from their international equity investments during the recent global financial crisis. Contrary to expectations for improved investment performance, the currency position for hedging purposes worsened performance. In this paper, we critically assess currency-hedging practices for international equity investments from the perspective of Korean investors. We find that international equity portfolios are concentrated in a limited number of emerging market regions; most international equity funds employ near-fixed and near-perfect currency-hedging policies; the minimum-variance currency-hedging strategy performs the best in emerging market regions and its relative gains over the current hedging policy are significant; the no-hedging strategy provides the best performance for the investments into the US and Europe during a turbulent period.

Keywords: International; portfolio; Foreign; exchange; risk; Currency; hedging; Minimum-variance; hedging; rule (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:19:y:2011:i:4:p:390-403

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