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Hedging Currencies with Hindsight and Regret

16 Pages Posted: 9 Oct 2003  

Meir Statman

Santa Clara University - Department of Finance

Kenneth L. Fisher

Fisher Investments, Inc.

Date Written: July 2003

Abstract

We find that the mean returns and standard deviations of global portfolios with hedged currencies during the 15-year period 1988-2002 were approximately equal to those of portfolios with unhedged currencies. Mean-variance investors who believe that the expected returns and standard deviations of hedged portfolios are equal to those of unhedged portfolios would be indifferent between them but behavioral investors would not be indifferent. Behavioral investors focus on individual securities and the forces of hindsight and regret move them back and forth between hedged portfolio and unhedged ones.

Keywords: Foreign Currency, Behavioral Finance, Portfolio Theory

JEL Classification: G14

Suggested Citation

Statman, Meir and Fisher, Kenneth L., Hedging Currencies with Hindsight and Regret (July 2003). Available at SSRN: https://ssrn.com/abstract=428741 or http://dx.doi.org/10.2139/ssrn.428741

Meir Statman (Contact Author)

Santa Clara University - Department of Finance ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)

Kenneth L. Fisher

Fisher Investments, Inc. ( email )

13100 Skyline Blvd.
Woodside, CA 94062
United States
800-851-8845 (Phone)
650-851-3514 (Fax)

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