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Using derivatives in major currencies for cross‐hedging currency risks in Asian emergency markets

Using derivatives in major currencies for cross‐hedging currency risks in Asian emergency markets Raj Aggarwal is the Edward J. and Louise E. Mellen Chair in Finance at John Carroll University. Andrea L. DeMaskey is an Assistant Professor of Finance at Villanova University. The Journal of Futures Markets, Vol. 17, No. 7, 781–796 (1997) 1997 by John Wiley & Sons, Inc. CCC 0270-7314/97/070781-16 Aggarwal and DeMaskey tions placed on foreign investors [e.g., Aggarwal (1994)].2 As the highest growth region, Asia attracts the largest proportion of cross-border investments. Currency hedged benchmarks are widely used to evaluate portfolio managers, and the currency hedging decision, while important, is generally made after the portfolio composition is established [e.g., Karnosky and Singer (1994)]. Currency hedging overlay policies are considered useful if they improve the risk–return performance of a portfolio (e.g., if they have a positive Sharpe performance index). Even though currency hedging is unlikely to be useful if purchasing power and interest rate parity conditions hold, there is now considerable evidence for the major currencies that hedging can be very beneficial. Hedged portfolios have been shown to offer better return–risk ratios than unhedged portfolios [e.g., Perold and Schulman (1988), Eaker, Grant, and Woodard (1993), Glen and Jorion (1993), Kritzman (1993), and Gastineau (1995)]. Although there is considerable http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Using derivatives in major currencies for cross‐hedging currency risks in Asian emergency markets

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Publisher
Wiley
Copyright
Copyright © 1997 John Wiley & Sons, Inc.
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/(SICI)1096-9934(199710)17:7<781::AID-FUT3>3.0.CO;2-J
Publisher site
See Article on Publisher Site

Abstract

Raj Aggarwal is the Edward J. and Louise E. Mellen Chair in Finance at John Carroll University. Andrea L. DeMaskey is an Assistant Professor of Finance at Villanova University. The Journal of Futures Markets, Vol. 17, No. 7, 781–796 (1997) 1997 by John Wiley & Sons, Inc. CCC 0270-7314/97/070781-16 Aggarwal and DeMaskey tions placed on foreign investors [e.g., Aggarwal (1994)].2 As the highest growth region, Asia attracts the largest proportion of cross-border investments. Currency hedged benchmarks are widely used to evaluate portfolio managers, and the currency hedging decision, while important, is generally made after the portfolio composition is established [e.g., Karnosky and Singer (1994)]. Currency hedging overlay policies are considered useful if they improve the risk–return performance of a portfolio (e.g., if they have a positive Sharpe performance index). Even though currency hedging is unlikely to be useful if purchasing power and interest rate parity conditions hold, there is now considerable evidence for the major currencies that hedging can be very beneficial. Hedged portfolios have been shown to offer better return–risk ratios than unhedged portfolios [e.g., Perold and Schulman (1988), Eaker, Grant, and Woodard (1993), Glen and Jorion (1993), Kritzman (1993), and Gastineau (1995)]. Although there is considerable

Journal

The Journal of Futures MarketsWiley

Published: Oct 1, 1997

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