Impact of Foreign Exchange Risk on International Portfolios
The purpose of this article is to illustrate the impact of foreign exchange risk on international investments such as well diversified portfolios of assets. The centre part of this study is the Value at Risk (VaR) model, computed with the variance-covariance approach and assuming non-normality of returns and conditional volatility. The analysis is made on relative VaR (RVaR), the most important type of VaR, with a time horizon of 1 week and a 95% confidence level. The results indicate that currency movements have a major impact of on international portfolios, a finding that is supported by the unpredictable nature of FX rates and their nonexistent correlation with foreign equity returns. Also, establishing a general rule regarding currency risk will be of great use when dealing with hedge instruments.
Volume (Year): 13 (2010)
Issue (Month): 37 (September)
|Contact details of provider:|| Postal: |
Web page: http://www.rei.ase.ro/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:rej:journl:v:13:y:2010:i:37:p:179-203. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Radu Lupu)
If references are entirely missing, you can add them using this form.