Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

A multinational examination of international equity and bond investment with currency hedging

A multinational examination of international equity and bond investment with currency hedging INTRODUCTION n 1980 non-domestic private sector pension assets were only $3.3 billion in the U S . and $0.4 billion in Japan. By 1986 those amounts had grown to $45 billion and $14.5 billion.' Large international portfolio investment has heightened interest in foreign exchange risk and the potential for managing it. The arguments in favor of international portfolio diversification are well-known and widely accepted. Work by Grubel (1968), Lessard (1970), Levy and Sarnat (1976), and Solnik (1974), among others, has demonstrated that in terms of mean-variance efficiency, international portfolios dominate purely U S . portfolios. Imperfect correlations between national equity indices create the opportunity for risk reduction. However, taking advantage of international investment opportunities entails accepting foreign exchange exposure. The returns on foreign equities and bonds are determined by both the nominal, or domestic performance of the securities, and the behavior of the foreign currency relative to the investor's domestic currency. Most previous authors studied only the combined effects of security and currency returns. [One exception is Solnik and Noetzlin (1982).] It is important to consider their effects separately, especially when examining the risk management potential of futures transactions, because a hedge of a foreign stock or bond http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

A multinational examination of international equity and bond investment with currency hedging

Download PDF
12 pages

Loading next page...
 
/lp/wiley/a-multinational-examination-of-international-equity-and-bond-LqdRtM41OS

References (14)

Publisher
Wiley
Copyright
Copyright © 1993 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/fut.3990130307
Publisher site
See Article on Publisher Site

Abstract

INTRODUCTION n 1980 non-domestic private sector pension assets were only $3.3 billion in the U S . and $0.4 billion in Japan. By 1986 those amounts had grown to $45 billion and $14.5 billion.' Large international portfolio investment has heightened interest in foreign exchange risk and the potential for managing it. The arguments in favor of international portfolio diversification are well-known and widely accepted. Work by Grubel (1968), Lessard (1970), Levy and Sarnat (1976), and Solnik (1974), among others, has demonstrated that in terms of mean-variance efficiency, international portfolios dominate purely U S . portfolios. Imperfect correlations between national equity indices create the opportunity for risk reduction. However, taking advantage of international investment opportunities entails accepting foreign exchange exposure. The returns on foreign equities and bonds are determined by both the nominal, or domestic performance of the securities, and the behavior of the foreign currency relative to the investor's domestic currency. Most previous authors studied only the combined effects of security and currency returns. [One exception is Solnik and Noetzlin (1982).] It is important to consider their effects separately, especially when examining the risk management potential of futures transactions, because a hedge of a foreign stock or bond

Journal

The Journal of Futures Markets – Wiley

Published: May 1, 1993

There are no references for this article.