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Towards Greater Diversification in Central Bank Reserves

23 Pages Posted: 6 Nov 2015 Last revised: 10 Dec 2015

Marie Briere

Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi

Valérie Mignon

EconomiX-CNRS, University of Paris Ouest; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: November 3, 2015

Abstract

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

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

Marie Briere (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Paris Dauphine University ( email )

place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Université Libre de Bruxelles ( email )

Brussels
Belgium

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050
Belgium

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

Valérie Mignon

EconomiX-CNRS, University of Paris Ouest ( email )

200 Avenue de la République
Nanterre, Nanterre Cedex 92001
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

113 rue de Grenelle
Paris, F-75007
France

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