Currency Hedging of International Bond Portfolios: Effects of Unconventional Monetary Policy Regimes

60 Pages Posted: 23 Feb 2018 Last revised: 4 Jun 2018

See all articles by Lawrence Kryzanowski

Lawrence Kryzanowski

Concordia University, Quebec - John Molson School of Business

Jie Zhang

Trent University

Rui Zhong

The University of Western Australia - UWA Business School

Date Written: May 28, 2018

Abstract

We examine the influence of Quantitative Easing (QE) on hedging effectiveness and performance (E&P) of international bond portfolios. During the QE period, the bond portfolios have significantly lower excess returns and variances, and their excess return and variance sensitivities are positive and negative with the Fed's MBS holdings and are less positive and less negative with the Fed's Treasury holdings. E&P are higher for optimal versus full hedging during the QE versus pre-QE period and differ for portfolios from developed and emerging countries. Results are robust using other hedging E&P measures and excluding countries with their own QEs.

Keywords: Currency Hedging, International Bond Portfolios, Quantitative Easing, Federal Reserve’s security-type holdings

JEL Classification: E52, E58, F31, G11, G15

Suggested Citation

Kryzanowski, Lawrence and Zhang, Jie and Zhong, Rui, Currency Hedging of International Bond Portfolios: Effects of Unconventional Monetary Policy Regimes (May 28, 2018). Available at SSRN: https://ssrn.com/abstract=3123960 or http://dx.doi.org/10.2139/ssrn.3123960

Lawrence Kryzanowski (Contact Author)

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Jie Zhang

Trent University ( email )

1600 West Bank Drive
Peterborough, Ontario K9J 7B8
Canada

Rui Zhong

The University of Western Australia - UWA Business School ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

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