Currency Exposure in International Minimum-Variance Equity Portfolios
| Autor: | Daniele Lamponi |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Transaction cost
010407 polymers Equity risk 050208 finance Optimization problem Financial economics 05 social sciences Equity (finance) 01 natural sciences 0104 chemical sciences Currency 0502 economics and business Economics General Earth and Planetary Sciences Portfolio Foreign exchange risk Equity capital markets General Environmental Science |
| Zdroj: | The Journal of Wealth Management. 19:95-102 |
| ISSN: | 2374-1368 1534-7524 |
| DOI: | 10.3905/jwm.2016.19.1.095 |
| Popis: | This article aims to contribute to the discussion on low-risk investing in international equity markets by showing the impact of currency-handling strategies on portfolio exposures. Investment professionals usually adhere either to the fully hedged or to the fully unhedged (or converted) approach. Both approaches have their pitfalls: The fully hedged approach neglects transaction costs as well as all operational issues, which can be costly and even jeopardize the approach’s implementation; the converted approach introduces country and currency biases. We first show the impact of the currency-handling methodology on the portfolio exposure. Second, we add the currencies to the optimization problem and compute a minimum-variance portfolio with a real-life set of investment constraints. We show that this global minimum-variance portfolio has exposure to stocks and currencies that lies between fully hedged and converted solutions. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|