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Using forward contracts to hedge foreign investment in US real estate

Using forward contracts to hedge foreign investment in US real estate Recent studies on foreign investment in US real estate provide evidence that fluctuating exchange rates are likely to reduce the potential gains from international diversification by making these investments more risky. However, other research has suggested that forward currency contracts may provide an effective mechanism for offsetting exchange rate volatility and thus restore the diversification benefits. Examines the use of forward contracts as a means of hedging the currency risk associated with foreign investment in US real estate. Indicates that, although continuous hedging of US real estate with forward contracts allows foreign investors to eliminate most of the risk induced by currency instability, the improvements are insufficient to produce diversification gains for all foreign investors in the context of meanvariance portfolio performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Valuation and Investment Emerald Publishing

Using forward contracts to hedge foreign investment in US real estate

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Publisher
Emerald Publishing
Copyright
Copyright © 1995 MCB UP Ltd. All rights reserved.
ISSN
0960-2712
DOI
10.1108/14635789510077278
Publisher site
See Article on Publisher Site

Abstract

Recent studies on foreign investment in US real estate provide evidence that fluctuating exchange rates are likely to reduce the potential gains from international diversification by making these investments more risky. However, other research has suggested that forward currency contracts may provide an effective mechanism for offsetting exchange rate volatility and thus restore the diversification benefits. Examines the use of forward contracts as a means of hedging the currency risk associated with foreign investment in US real estate. Indicates that, although continuous hedging of US real estate with forward contracts allows foreign investors to eliminate most of the risk induced by currency instability, the improvements are insufficient to produce diversification gains for all foreign investors in the context of meanvariance portfolio performance.

Journal

Journal of Property Valuation and InvestmentEmerald Publishing

Published: Mar 1, 1995

Keywords: Contracts; Currencies; Foreign investment; Real estate

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