CURRENCY HEDGING FOR INTERNATIONAL PORTFOLIOS

This paper examines the benefits from currency hedging, both for specu lative and risk minimization motives, in international bond and equity portfolios. The risk-return performances of globally diversified port folios are compared with and without forward contracts. Over the perio d 1974 to 1990, inclusion of forward contracts results in statisticall y significant improvements in the performance of unconditional portfol ios containing bonds. Conditional strategies are also implemented, bot h in sample and out of sample, and are shown to both significantly imp rove the risk-return tradeoff of global portfolios and to outperform u nconditional hedging strategies.