Investing in Emerging Stock Markets: Is it Worthwhile Hedging Foreign Exchange Risk?

6 Pages Posted: 4 Feb 2008 Last revised: 8 Oct 2013

See all articles by Shmuel Hauser

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management; Government of the State of Israel - Israel Securities Authority

Matityahu Marcus

Independent

Uzi Yaari

Rutgers University; School of Business-Camden

Abstract

Stock markets in emerging economies are often surrounded by a fast-pace real and monetary growth. The high returns typical of those markets continue to attract foreign investors who are looking to enhance the performance of their portfolios. A number of studies demonstrate the advantage of international diversification due to a comparatively low correlation between stock returns in developed and emerging markets, an advantage expressed in terms of risk-return tradeoff. In this study, we empirically examine the role of exchange rate risk in determining the benefits from international diversification. While a number of studies conclude that those benefits are enhanced by hedging the exchange rate risk, we find that such a hedge may decrease the gain from diversification between a developed market and a high-risk emerging one.

Keywords: international stock portfolio, hedging foreign exchange risk, international capital markets

JEL Classification: F21, F31, G11, G15

Suggested Citation

Hauser, Shmuel and Marcus, Matityahu and Yaari, Uzi, Investing in Emerging Stock Markets: Is it Worthwhile Hedging Foreign Exchange Risk?. Journal of Portfolio Management, Vol. 20, No. 3, pp. 76-81, 1994 , Available at SSRN: https://ssrn.com/abstract=1089111

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
+972 2 651 3939 (Phone)
+972 7 6472896 (Fax)

Government of the State of Israel - Israel Securities Authority

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Matityahu Marcus

Independent ( email )

Uzi Yaari (Contact Author)

Rutgers University ( email )

School of Business
Camden, NJ 08102
United States
610-664-2086 (Phone)

HOME PAGE: http://camden-sbc.rutgers.edu/FacultyStaff/Directory/yaari.htm

School of Business-Camden ( email )

Rutgers University
227 Penn Street
Camden, NJ 08102
United States
610-664-2086 (Phone)
610-664-2198 (Fax)

HOME PAGE: http://camden-sbc.rutgers.edu/FacultyStaff/Directory/yaari.htm

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