The Term Structure Of Currency Hedge Ratios
This paper investigates the variance minimizing currency forward hedge of an exporting firm that is exposed to different sources of risk. In an empirical study, we quantify the corresponding hedge ratios of a "typical" German firm for different hedge horizons. Based on cointegrated vector autoregressive models of prices, interest rates and exchange rates, we show that hedge ratios decrease substantially with the hedge horizon for different currencies, reaching values of one half or less for a ten-years horizon. Our findings can partly explain underhedging of long-term exchange rate exposures and have important implications for the design of risk management strategies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 14 (2011)
Issue (Month): 04 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml|
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:14:y:2011:i:04:p:525-557. 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: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.