23 Pages Posted: 6 Nov 2015 Last revised: 10 Dec 2015
Date Written: November 3, 2015
This paper compares the performance of various diversification strategies regarding foreign exchange reserves. The aim is to provide central banks with guidelines in portfolio allocation. We pay particular attention to the situation of upward pressures on U.S. interest rates by implementing our analysis over both the whole 1986-2015 period and the rising rates subsample. Relying on geometric tests of mean-variance efficiency, we show that introducing currencies weakly correlated to the USD (AUD and CAD) significantly reduces portfolio risk. Expected return is improved through mortgage-backed securities, corporate bonds, and equities.
Keywords: Foreign exchange reserves; diversification; asset allocation
JEL Classification: F31, G11, G15, E58
Suggested Citation: Suggested Citation
Briere, Marie and Oosterlinck, Kim and Szafarz, Ariane and Mignon, Valérie, Towards Greater Diversification in Central Bank Reserves (November 3, 2015). Available at SSRN: https://ssrn.com/abstract=2685910 or http://dx.doi.org/10.2139/ssrn.2685910