Deakin University
Browse

File(s) under permanent embargo

Global currency hedging with common risk factors

Version 2 2024-06-03, 20:10
Version 1 2020-01-07, 10:36
journal contribution
posted on 2024-06-03, 20:10 authored by Wei OpieWei Opie, SJ Riddiough
We develop a novel method to dynamically hedge foreign exchange exposure in international equity and bond portfolios. The method exploits the time-series predictability of currency returns, which we show emerges from exploiting a forecastable component in global factor returns. The hedging strategy outperforms leading alternative approaches to currency hedging across a large set of performance metrics. Moreover, we find that exploiting currency return predictability via an independent currency portfolio delivers a high risk-adjusted return and provides superior diversification gains to global equity and bond investors relative to currency carry, value, and momentum investment strategies.

History

Journal

Journal of financial economics

Volume

136

Pagination

780-805

Location

Amsterdam, The Netherlands

ISSN

0304-405X

Language

eng

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Issue

3

Publisher

Elsevier