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Global Currency Hedging

Author

Listed:
  • JOHN Y. CAMPBELL
  • KARINE SERFATY‐DE MEDEIROS
  • LUIS M. VICEIRA

Abstract

Over the period 1975 to 2005, the U.S. dollar (particularly in relation to the Canadian dollar), the euro, and the Swiss franc (particularly in the second half of the period) moved against world equity markets. Thus, these currencies should be attractive to risk‐minimizing global equity investors despite their low average returns. The risk‐minimizing currency strategy for a global bond investor is close to a full currency hedge, with a modest long position in the U.S. dollar. There is little evidence that risk‐minimizing investors should adjust their currency positions in response to movements in interest differentials.

Suggested Citation

  • John Y. Campbell & Karine Serfaty‐De Medeiros & Luis M. Viceira, 2010. "Global Currency Hedging," Journal of Finance, American Finance Association, vol. 65(1), pages 87-121, February.
    • Handle: RePEc:bla:jfinan:v:65:y:2010:i:1:p:87-121
    DOI: 10.1111/j.1540-6261.2009.01524.x
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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