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Strategic currency hedging

Author

Listed:
  • A Dales

    (Barclays Global Investors, Murray House)

  • R Meese

Abstract

This paper examines the rationale for strategic hedging policy, whereby some fixed proportion of the currency exposure associated with international assets is hedged. We begin with a review of both the theoretical and empirical literature on hedging policy. This literature provides a strong case for hedging some portion of the currency exposure associated with international investing. Differences in opinion remain, however, as to the appropriate methodology to use when constructing hedge ratios in practice. We advocate the use of portfolio optimisation methods and provide examples, along with caveats and guidelines, for the calculation of hedge ratios from a number of different currency perspectives.

Suggested Citation

  • A Dales & R Meese, 2001. "Strategic currency hedging," Journal of Asset Management, Palgrave Macmillan, vol. 2(1), pages 9-21, June.
    • Handle: RePEc:pal:assmgt:v:2:y:2001:i:1:d:10.1057_palgrave.jam.2240031
    DOI: 10.1057/palgrave.jam.2240031
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    Cited by:

    1. Kroencke, Tim A. & Schindler, Felix, 2012. "International diversification with securitized real estate and the veiling glare from currency risk," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1851-1866.
    2. Philipp Bejol & Nicola Livingstone, 2018. "Revisiting currency swaps: hedging real estate investments in global city markets," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 36(2), pages 191-209, March.
    3. Susan Thorp, 2004. "That Courage is not inconsistent with Caution: Foreign Currency Hedging for Superannuation Funds," Econometric Society 2004 Australasian Meetings 148, Econometric Society.
    4. Jochen M. Schmittmann, 2010. "Currency Hedging for International Portfolios," IMF Working Papers 2010/151, International Monetary Fund.

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