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Optimal multi-currency investment strategies with exact attribution in three Asian countries

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  • Los, Cornelis A.

Abstract

Singer and Karnosky's (1995) exact and complete return attribution framework does not account for risk, since it ignores accumulated historical information. Its implied investment strategy selection is based on simple return maximization and ignores that investment strategies are correlated via intra-and inter-market risks. Using simple tensor algebra we extend their exact accounting framework to include market risk measurements for n countries. The resulting n^2 x n^2 strategy risk matrix exactly decomposes into a tensor sum of the n x n fundamental market risk matrices. Since the strategy risk matrix is singular with rank = 2n-1
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Suggested Citation

  • Los, Cornelis A., 1998. "Optimal multi-currency investment strategies with exact attribution in three Asian countries," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 169-198, September.
  • Handle: RePEc:eee:mulfin:v:8:y:1998:i:2-3:p:169-198
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    References listed on IDEAS

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    2. Glen, Jack & Jorion, Philippe, 1993. " Currency Hedging for International Portfolios," Journal of Finance, American Finance Association, vol. 48(5), pages 1865-1886, December.
    3. Chapman, David A, 1997. " Approximating the Asset Pricing Kernel," Journal of Finance, American Finance Association, vol. 52(4), pages 1383-1410, September.
    4. Eun, Cheol S & Resnick, Bruce G, 1988. " Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection," Journal of Finance, American Finance Association, vol. 43(1), pages 197-215, March.
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    Cited by:

    1. Cornelis A. Los, 2004. "Nonparametric Efficiency Testing of Asian Stock Markets Using Weekly Data," Finance 0409033, EconWPA.
    2. Los, Cornelis A., 1999. "Galton's Error and the under-representation of systematic risk," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1793-1829, December.
    3. Cornelis A. Los, 2004. "Measuring Financial Cash Flow and Term Structure Dynamics," Finance 0409046, EconWPA.
    4. Cornelis A. Los, 2004. "Model Uncertainty, Complexity and Rank in Finance," Econometrics 0411013, EconWPA.
    5. Cornelis A. Los, 2004. "Optimal Asian Multi-Currency Strategy Portfolios with Exact Risk Attribution," Finance 0409038, EconWPA.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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