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Benefits from Asia-Pacific Mutual Fund Investments with Currency Hedging

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  • DeMaskey, Andrea L
  • Dellva, Wilfred L
  • Heck, Jean L

Abstract

This study presents empirical evidence on the efficiency and effectiveness of hedging U.S.-based international mutual funds with an Asia-Pacific investment objective. The case for active currency risk management is examined for a passive and a selective hedge, which is constructed with currency futures in the major currencies. Both static and dynamic hedging models are used to estimate the risk-minimizing hedge ratio. The results show that currency hedging improves the performance of internationally diversified mutual funds. Such hedging is beneficial even when based on prior optimal hedge ratios. Further, efficiency gains from hedging, as measured by the percent change in the Sharpe Index, are greatest under a selective portfolio strategy that is implemented with an optimal constant hedge ratio. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • DeMaskey, Andrea L & Dellva, Wilfred L & Heck, Jean L, 2003. "Benefits from Asia-Pacific Mutual Fund Investments with Currency Hedging," Review of Quantitative Finance and Accounting, Springer, vol. 21(1), pages 49-64, July.
    • Handle: RePEc:kap:rqfnac:v:21:y:2003:i:1:p:49-64
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    Cited by:

    1. Imad Moosa, 2011. "The profitability of interest arbitrage when the base currency is pegged to a basket," Review of Quantitative Finance and Accounting, Springer, vol. 37(3), pages 267-281, October.
    2. Libo Yin & Liyan Han, 2015. "Hedging International Foreign Exchange Risks via Option Based Portfolio Insurance," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 151-181, January.
    3. Ruzita Abdul Rahim & Ling Pick Soon & Rasidah Mohd Rashid, 2019. "Performance of Local Versus International Focus Malaysian-based Mutual Funds," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(2), pages 53-75.

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