Global currency hedging
By: John Y. Campbell, Karine Serfaty-de Medeiros, Luis M. Viceira
Contributors: Medeiros, Karine Serfaty-de; Viceira, Luis M.; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 07-084; Working paper (Harvard Business School. Division of Research) -- 07-084
Publisher: Division of Research, Harvard Business School
Published: 2007
Place of publication: Boston
Language: eng
Number of pages: 54
Description: This paper considers the risk management problem of an investor who holds a diversified portfolio of global equities or bonds and chooses long or short positions in currencies to manage the risk of the total portfolio. Over the period 1975-2005, we find that a risk-minimizing global equity investor should short the Australian dollar, Canadian dollar, Japanese yen, and British pound but should hold long positions in the US dollar, the euro, and the Swiss franc. The resulting currency position tends to rise in value when equity markets fall. This strategy works well for investment horizons of one month to one year. In the past 15 years the risk-minimizing demand for the dollar appears to have weakened slightly, while demands for the euro and Swiss franc have strengthened. These changes may reflect the growing role for the euro as a reserve currency in the international financial system.
Notes: "This draft: April 2007"--Added t.p.

Includes bibliographical references.