Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76958
Authors: 
Maurer, Raimond
Valiani, Shohreh
Year of Publication: 
2003
Series/Report no.: 
Working Paper Series: Finance & Accounting, Johann Wolfgang Goethe-Universität Frankfurt a. M. 109
Abstract: 
As past research suggest, currency exposure risk is a main source of overall risk of international diversified portfolios. Thus, controlling the currency risk is an important instrument for controlling and improving investment performance of international investments. This study examines the effectiveness of controlling the currency risk for international diversified mixed asset portfolios via different hedge tools. Several hedging strategies, using currency forwards and currency options, were evaluated and compared with each other. Therefore, the stock and bond markets of the, United Kingdom, Germany, Japan, Switzerland, and the U.S, in the time period of January 1985 till December 2002, are considered. This is done form the point of view of a German investor. Due to highly skewed return distributions of options, the application of the traditional mean-variance framework for portfolio optimization is doubtful when options are considered. To account for this problem, a mean-LPM model is employed. Currency trends are also taken into account to check for the general dependence of time trends of currency movements and the relative potential gains of risk controlling strategies.
Subjects: 
International Portfolio Diversification
Currency Hedging
FX Derivatives
Shortfall
JEL: 
F31
G11
G15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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