Currency Hedging

16 Pages Posted: 9 May 2017

See all articles by Roberto Obregon

Roberto Obregon

Meketa Investment Group

Frank Benham

Meketa Investment Group

Edmund Walsh

Economic Data Sciences

Timur Yontar

Meketa Investment Group

Date Written: May 5, 2017

Abstract

Investing in foreign assets can improve the diversification profile of U.S. institutional investors, but this comes at the expense of introducing currency risk to a portfolio. Given that currency returns are volatile and difficult to predict, many investors consider implementing currency-hedging programs to reduce or eliminate the volatility that results from foreign currency exposures.

This paper examines the prospect of hedging currency risk, evaluating the different methods used to established hedges and types of currency management overlay programs, as well as the historical risk, returns and costs of hedging developed market and emerging market currency exposures.

Meketa Investment Group recommends investors evaluate their currency hedging decisions from a total portfolio perspective that incorporates portfolio-wide exposure, hedging costs, and volatility and return targets.

Keywords: currency, hedging, "institutional investors", "currency risk", "foreign currency"

JEL Classification: G15

Suggested Citation

Obregon, Roberto and Benham, Frank and Walsh, Edmund and Yontar, Timur, Currency Hedging (May 5, 2017). Available at SSRN: https://ssrn.com/abstract=2964903 or http://dx.doi.org/10.2139/ssrn.2964903

Roberto Obregon

Meketa Investment Group ( email )

United States

Frank Benham (Contact Author)

Meketa Investment Group ( email )

100 Lowder Brook Drive, Suite 1100
Westwood, MA 02090
United States

HOME PAGE: http://www.meketagroup.com/

Edmund Walsh

Economic Data Sciences ( email )

1 Brunel Way
The Porter Building, Level 2
Slough, SL1 1FQ
United Kingdom
01753 396 581 (Phone)

Timur Yontar

Meketa Investment Group ( email )

United States

HOME PAGE: http://www.meketagroup.com

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