The Introduction Of Emerging Currencies Into A Portfolio: Towards A More Complete Diversification Model
We draw on portfolio theory and international diversification in order to analyse strategies allowing to reduce emerging economies' exposure to exchange-rate risk. We show in particular that it may be efficient for an investor, in terms of maximising the return-to-risk ratio, to build up a portfolio of emerging-country assets denominated in local currency - unhedged against currency risk - compared with a strategy including emerging-country securities denominated in foreign currencies. This strategy would lead to a reduction in the original sin (i.e. the inability of emerging economies to borrow in local currency), and de facto to a reduction in currency mismatches in the balance sheets of emerging economies.
|Date of creation:||15 Mar 2009|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00616581v2|
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