Internationally Diversified Bond Portfolios: The Merits of Active Currency Risk Management

Richard M. Levich and Lee R. Thomas

No 4340, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A new statistical procedure is used to test for weak form efficiency in the foreign exchange futures markets. Using daily currency futures prices for the 1976-1990 period, we conclude that successive exchange rate changes have not been independent We examine the implications of this finding for two groups of investors: (1) return seeking investors considering foreign exchange as a separate asset class; (2) international portfolio investors deciding whether or not to currency hedge the foreign exchange rate exposures embedded in their non-dollar investments. Using the currency futures data and monthly data on 10-year dollar and non-dollar bonds, we conclude that active currency risk management, based on a simple application of technical trading signals, can substantially improve the risk-return opportunities for both groups of investors in comparison to passive currency strategies.

JEL-codes: F31 G23 (search for similar items in EconPapers)
Date: 1993-04
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Financial Analysts Journal, vol. 49, 1993, pp.63-70.

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