Online Appendix: International Diversification Benefits with Foreign Exchange Investment Styles

40 Pages Posted: 18 Dec 2012

See all articles by Tim Alexander Kroencke

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies; ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 14, 2012

Abstract

This document contains supporting material for the following article: Tim Kroencke, Felix Schindler and Andreas Schrimpf (2012), "International Diversification Benefits with Foreign Exchange Investment Styles".

This paper studies portfolio choice with popular foreign exchange (FX) investment styles such as carry trades, FX momentum and FX value strategies. We go beyond the benefits from hedging to shed more light on the speculative component of currency investments. In particular, we are interested in the magnitude of diversification benefits due to the style-based management of the currency component of well-diversified international portfolios. Our results suggest that FX investment styles generate significant improvements in the asset allocation. These findings hold after taking into account transaction costs and when controlling for the FX risk inherent in the benchmark assets. Importantly, these results are also confirmed in an extensive out-of-sample experiment mimicking investor decisions in real-time.

The paper "International Diversification Benefits with Foreign Exchange Investment Styles" to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=1790764

Keywords: International Diversification, Foreign Exchange Speculation and Hedging, Carry Trades, Stochastic Dominance, Investment Styles

JEL Classification: F31, G12, G15

Suggested Citation

Kroencke, Tim Alexander and Schindler, Felix and Schrimpf, Andreas, Online Appendix: International Diversification Benefits with Foreign Exchange Investment Styles (December 14, 2012). Available at SSRN: https://ssrn.com/abstract=2189886 or http://dx.doi.org/10.2139/ssrn.2189886

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel,7
Neuchatel, CH-2000
Switzerland

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies ( email )

Berlin
Germany

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

Andreas Schrimpf (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
119
Abstract Views
721
rank
234,812
PlumX Metrics