Hedging Currencies with Hindsight and Regret
Santa Clara University - Department of Finance
Kenneth L. Fisher
Fisher Investments, Inc.
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.
Number of Pages in PDF File: 16
Keywords: Foreign Currency, Behavioral Finance, Portfolio Theory
JEL Classification: G14
Date posted: October 9, 2003