IDEAS home Printed from
   My bibliography  Save this paper

International Dynamic Asset Allocation and the Effect of the Exchange Rate


  • Kristien Smedts


This paper analyzes a stylized theoretical framework to examine optimal portfolio selection in an international context with an explicit focus on the effect of the exchange rate. More specifically, we study how the elimination of the exchange rate induces shifts in the optimal international portfolio. We show that the effect of the elimination of the exchange rate on the optimal portfolio is twofold. First, the volatility of the international portfolio changes (volatility effect of the exchange rate), and second, the national market prices of risk converge to common international market prices of risk (price effect of the exchange rate). This induces important shifts in the optimal international portfolio.

Suggested Citation

  • Kristien Smedts, 2004. "International Dynamic Asset Allocation and the Effect of the Exchange Rate," Working Papers Department of Economics ces0404, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0404

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    International Financial Markets; Portfolio Diversification; Foreign Exchange.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:ete:ceswps:ces0404. 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: (library EBIB). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.