Efficient Risk Reducing Strategies by International Diversification: Evidence from a Central European Emerging Market

Raimond Maurer () and Gyöngyi Bugàr ()
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Gyöngyi Bugàr: Janus Pannonius University of Pécs, Faculty of Business and Economics, Postal: 7622 Pécs, Rákóczi út 80, Hungary

No 99-88, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In this paper, we study the benefits derived from the international diversification of stock portfo-lios from the Hungarian point of view. The Hungarian Stock Exchange is an emerging market, which reopened its floor on June 21, 1990 as a consequence of the so-called transition process having gone on in Eastern and Central Europe in the past decade. The stock market in Hungary is highly volatile, high returns are often accompanied by extremely large risk. Therefore, there is a good potential for Hungarian investors to realize substantial benefits in terms of risk reduction by creating multi-currency portfolios. The paper gives evidence on the above mentioned benefits by examining the performance of several ex ante portfolio strategies. In order to control the currency risk three different types of hedging strategies are implemented.

Pages: 21 pages
Date: 1999-11-25
Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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