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Towards Greater Diversification in Central Bank Reserves

Author

Listed:
  • Marie Brière

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres)

  • Kim Oosterlinck

    (ULB - Université libre de Bruxelles = Free University of Brussels)

  • Ariane Szafarz

    (Dulbéa - Département d'économie appliquée de l'université libre de Bruxelles - ULB - Université libre de Bruxelles = Free University of Brussels, ULB - Université libre de Bruxelles = Free University of Brussels, Centre Emile Bernheim - ULB - Université libre de Bruxelles = Free University of Brussels - SBS-EM, CERMi - Centre for European Research in Microfinance)

  • Valérie Mignon

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article compares the performance of various diversification strategies regarding foreign exchange reserves. The aim is to provide central banks with guidelines in portfolio allocation. We pay particular attention to the situation of upward pressures on US interest rates by implementing our analysis over both the whole 1986–2015 period and a rising rate subsample. Relying on geometric tests of mean-variance efficiency, we show that introducing currencies weakly correlated to the USD (AUD and CAD) significantly reduces portfolio risk. Expected return is improved through mortgage-backed securities, corporate bonds and equities.

Suggested Citation

  • Marie Brière & Kim Oosterlinck & Ariane Szafarz & Valérie Mignon, 2016. "Towards Greater Diversification in Central Bank Reserves," Post-Print hal-02315436, HAL.
    • Handle: RePEc:hal:journl:hal-02315436
    DOI: 10.1057/jam.2016.14
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    Cited by:

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    2. Jonathan Fletcher & Elizabeth Littlejohn & Andrew Marshall, 2023. "Exploring the performance of US international bond mutual funds," The Financial Review, Eastern Finance Association, vol. 58(4), pages 765-782, November.
    3. Omane-Adjepong, Maurice & Alagidede, Imhotep Paul, 2019. "Multiresolution analysis and spillovers of major cryptocurrency markets," Research in International Business and Finance, Elsevier, vol. 49(C), pages 191-206.

    More about this item

    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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