Internationally Diversified Bond Portfolios: The Merits of Active Currency Risk Management
A new statistical procedure is used to test for weak form efficiency in the foreign exchange futures markets. Using daily currency futures prices for the 1976-1990 period, we conclude that successive exchange rate changes have not been independent We examine the implications of this finding for two groups of investors: (1) return seeking investors considering foreign exchange as a separate asset class; (2) international portfolio investors deciding whether or not to currency hedge the foreign exchange rate exposures embedded in their non-dollar investments. Using the currency futures data and monthly data on 10-year dollar and non-dollar bonds, we conclude that active currency risk management, based on a simple application of technical trading signals, can substantially improve the risk-return opportunities for both groups of investors in comparison to passive currency strategies.
|Date of creation:||Apr 1993|
|Date of revision:|
|Publication status:||published as Financial Analysts Journal, vol. 49, 1993, pp.63-70.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Black, Fischer, 1990. " Equilibrium Exchange Rate Hedging," Journal of Finance, American Finance Association, vol. 45(3), pages 899-907, July.
- Froot, Kenneth A & Thaler, Richard H, 1990. "Foreign Exchange," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 179-92, Summer.
- Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
- Richard M. Levich & Lee R. Thomas, 1991. "The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: A Bootstrap Approach," NBER Working Papers 3818, National Bureau of Economic Research, Inc.
- Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4340. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.