FORWARD EXCHANGE BIAS, HEDGING AND THE GAINS FROM INTERNATIONAL DIVERSIFICATION OF INVESTMENT PORTFOLIOS

Authors
LEVY H LIM KC
Citation
H. Levy et Kc. Lim, FORWARD EXCHANGE BIAS, HEDGING AND THE GAINS FROM INTERNATIONAL DIVERSIFICATION OF INVESTMENT PORTFOLIOS, Journal of international money and finance, 13(2), 1994, pp. 159-170
Citations number
13
Categorie Soggetti
Business Finance
Journal title
Journal of international money and finance → ACNP
ISSN journal
02615606
Volume
13
Issue
2
Year of publication
1994
Pages
159 - 170
Database
ISI
SICI code
0261-5606(1994)13:2<159:FEBHAT>2.0.ZU;2-L
Abstract
The gains to the US investor from international diversification of inv estment portfolios are examined for portfolio strategies that hedge an d strategies that do not hedge exchange rate risk via the interbank fo rward market. Using the Sharpe Performance Index and stochastic domina nce as performance measures, almost all the unhedged strategies outper formed the hedged strategies for 1985-88; the opposite held for 1981-8 4. The results are explained by the biasedness of forward rates in pre dicting future spot rates.