IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v240y2024ics0165176524002581.html
   My bibliography  Save this article

Foreign investments of Japanese life insurance companies

Author

Listed:
  • Chen, Steven Shu-Hsiu

Abstract

We investigate Japanese life insurance companies’ investment returns or volatilities and their discretionary decisions on foreign portfolio investments. These decisions include the proportion of foreign investments in the companies’ proprietary investments and the currency risk hedge. We consider the “carry trade” scenario when the market favors investing in high-yield currencies by borrowing the Japanese yen. We establish three results. First, the currency hedge relates positively to the investment returns under the carry trade scenario but negatively otherwise. Second, the proportion of foreign investments relates positively to the investment returns. Third, the investment returns significantly decrease under the carry trade scenario.

Suggested Citation

  • Chen, Steven Shu-Hsiu, 2024. "Foreign investments of Japanese life insurance companies," Economics Letters, Elsevier, vol. 240(C).
    • Handle: RePEc:eee:ecolet:v:240:y:2024:i:c:s0165176524002581
    DOI: 10.1016/j.econlet.2024.111774
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176524002581
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2024.111774?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chow, Edward H. & Chen, Hung-Ling, 1998. "The determinants of foreign exchange rate exposure: Evidence on Japanese firms1," Pacific-Basin Finance Journal, Elsevier, vol. 6(1-2), pages 153-174, May.
    2. Bansal, Ravi & Dahlquist, Magnus, 2000. "The forward premium puzzle: different tales from developed and emerging economies," Journal of International Economics, Elsevier, vol. 51(1), pages 115-144, June.
    3. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette A., 2010. "Resolving the exposure puzzle: The many facets of exchange rate exposure," Journal of Financial Economics, Elsevier, vol. 95(2), pages 148-173, February.
    4. Bartram, Söhnke M., 2019. "Corporate hedging and speculation with derivatives," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 9-34.
    5. Kim, Sungjae Francis, 2023. "Currency carry trades, risk management, and firm value: Evidence from Korean banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    6. Allayannis, George & Ofek, Eli, 2001. "Exchange rate exposure, hedging, and the use of foreign currency derivatives," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 273-296, April.
    7. Bansal, Ravi, 1997. "An Exploration of the Forward Premium Puzzle in Currency Markets," The Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 369-403.
    8. Kathleen L. Henebry & Jeanette M. Diamond, 1998. "Life Insurance Company Investment Portfolio Composition," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 21(2), pages 183-203.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aysun, Uluc & Guldi, Melanie, 2011. "Exchange rate exposure: A nonparametric approach," Emerging Markets Review, Elsevier, vol. 12(4), pages 321-337.
    2. Bartram, Söhnke M., 2008. "What lies beneath: Foreign exchange rate exposure, hedging and cash flows," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1508-1521, August.
    3. Huimin Guo & Zheyao Pan & Gary Gang Tian, 2021. "State ownership and the risk‐reducing effect of corporate derivative use: Evidence from China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1092-1133, May.
    4. Sikarwar, Ekta, 2020. "Forex interventions and exchange rate exposure: Evidence from emerging market firms," Economic Modelling, Elsevier, vol. 93(C), pages 69-81.
    5. Lutz Hahnenstein & Gerrit Köchling & Peter N. Posch, 2021. "Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 718-741, March.
    6. Belghitar, Yacine & Clark, Ephraim & Dropsy, Vincent & Mefteh-Wali, Salma, 2021. "The effect of exchange rate fluctuations on the performance of small and medium sized enterprises: Implications for Brexit," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 399-410.
    7. Timo Korkeamaki & Danielle Xu, 2015. "Institutional Investors and Foreign Exchange Risk," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-33, September.
    8. C. Emre Alper & Oya Pinar Ardic & Salih Fendoglu, 2009. "The Economics Of The Uncovered Interest Parity Condition For Emerging Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 115-138, February.
    9. M. A. Adebiyi & M. O. Abeng, 2019. "The Sensitivity of Sector Stock Returns to Exchange Rate Risks in Nigeria," Economic and Financial Review, Central Bank of Nigeria, vol. 57(2), June.
    10. Mulder, Arjen & Tims, Ben, 2018. "Conditioning carry trades: Less risk, more return," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 1-19.
    11. Fuchs, Fabian U., 2022. "Macroeconomic determinants of foreign exchange rate exposure," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 77-102.
    12. Sarno, Lucio & Schneider, Paul & Wagner, Christian, 2012. "Properties of foreign exchange risk premiums," Journal of Financial Economics, Elsevier, vol. 105(2), pages 279-310.
    13. Blake Loriot & Elaine Hutson & Hue Hwa Au Yong, 2020. "Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 45(1), pages 72-93, February.
    14. Coulibaly, Dramane & Kempf, Hubert, 2019. "Inflation targeting and the forward bias puzzle in emerging countries," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 19-33.
    15. Bae, Sung C. & Kwon, Taek Ho & Park, Rae Soo, 2018. "Managing exchange rate exposure with hedging activities: New approach and evidence," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 133-150.
    16. Shu Wu, 2007. "Interest Rate Risk and the Forward Premium Anomaly in Foreign Exchange Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 423-442, March.
    17. Tarek A Hassan & Rui C Mano, 2019. "Forward and Spot Exchange Rates in a Multi-Currency World," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 397-450.
    18. Oliver Entrop & Matthias F. Merkel, 2020. "Managers’ research education, the use of FX derivatives and corporate speculation," Review of Managerial Science, Springer, vol. 14(4), pages 869-901, August.
    19. Richard T. Baillie & Rehim Kilic, 2005. "Do Asymmetric and Nonlinear Adjustments Explain the Forward Premium Anomaly?," Working Papers 543, Queen Mary University of London, School of Economics and Finance.
    20. Nazli Toraganli, 2010. "Exchange Rate Pass-Through and Exposure in the Turkish Economy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(1), pages 47-69.

    More about this item

    Keywords

    Japanese life insurance companies; Carry trade; Foreign investments; Currency risk; Currency hedging;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:240:y:2024:i:c:s0165176524002581. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.