IDEAS home Printed from https://ideas.repec.org/a/blg/journl/v5y2010i3p185-200.html
   My bibliography  Save this article

International Investments With Exchange Rate Risk: The Case Of Central And Eastern Europe Currencies

Author

Listed:
  • Alexandra Horobet

    (Academy of Economic Studies)

  • Livia Ilie

    (Lucian Blaga Unversity of Sibiu)

Abstract

The paper investigates the impact that exchange rate risk has on the risk-return profile of investments in emerging countries. The emerging countries under scrutiny are Czech Republic, Hungary, Poland, Romania, Russia and Turkey, all from Central and Eastern Europe. We examine the importance of currency risk from the perspective of a US dollar based investor, by looking at the contribution that changes in exchange rates of these countries’ currencies against the US dollar has for the total risk of investments in these markets, on one hand, and on the correlation between these markets’ returns and the US market return. Our analysis spans over an interval between December 2005 and August, 2009, thereby taking into account the exchange rate risk contribution in normal versus turbulent times. We find that exchange rate volatility is not an additional factor for the volatility of CEE markets when returns are denominated in US dollars. In general, exchange rate risk is a positive contributor to the risk of an investment in CEE markets, and that in more turbulent times, as the ones after September 2008, the impact of exchange rate risk is higher than in normal times. Moreover, in financial crisis times we observe that currency risk lowers the correlation between the US market and CEE markets, and does not indirectly increase the risk of a US investment made in any CEE market through the correlation between markets. Therefore, even in turbulent times, portfolio diversification in CEE financial assets may prove beneficial for US investors.

Suggested Citation

  • Alexandra Horobet & Livia Ilie, 2010. "International Investments With Exchange Rate Risk: The Case Of Central And Eastern Europe Currencies," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 5(3), pages 185-200, December.
    • Handle: RePEc:blg:journl:v:5:y:2010:i:3:p:185-200
    as

    Download full text from publisher

    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/5311horobet&ilie.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joel Hinaunye Eita & Charles Raoul Tchuinkam Djemo, 2022. "Quantifying Foreign Exchange Risk in the Selected Listed Sectors of the Johannesburg Stock Exchange: An SV-EVT Pairwise Copula Approach," IJFS, MDPI, vol. 10(2), pages 1-29, April.
    2. Charles Raoul Tchuinkam Djemo & John Weirstrass Muteba Mwamba & Mathias Mandla Manguzvane, 2021. "Exchange Rate Risk and International Equity Portfolio Diversification: A South African Investor’s Perspective," The African Finance Journal, Africagrowth Institute, vol. 23(2), pages 36-49.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:blg:journl:v:5:y:2010:i:3:p:185-200. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mihaela Herciu (email available below). General contact details of provider: https://edirc.repec.org/data/feulbro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.