International Currency Portfolios
نویسنده
چکیده
The paper develops a theory that endogenizes the currency composition of international nominal bond portfolios in general equilibrium. It emphasizes the critical roles of government debt and of government policies, and thereby reconnects to the partial equilibrium portfolio balance literature of the 1980s. Consistent with recent empirical findings, optimal private sector foreign currency positions are found to be small and possibly negative, with their size decreasing in exchange rate volatility. Optimal private sector domestic currency positions are large and increasing in domestic interest rates. Uncovered interest parity is replaced by a relationship that also depends on outstanding bond stocks.
منابع مشابه
Two-Stage Stochastic International Portfolio Optimisation under Regular-Vine-Copula-Based Scenarios
An international portfolio allows simultaneous investment in both domestic and foreign markets. It hence has the potential for improved performance by exploiting a wider range of returns, and diversification benefits, than portfolios investing in just one market. However, to obtain the most efficient portfolios (along with the usual management of assets) the risks from currency fluctuations nee...
متن کاملInternational Portfolio Optimisation with Integrated Currency Overlay Costs and Constraints
Portfolio optimisation typically aims to provide an optimal allocation that minimises risk, at a given return target, by diversifying over different investments. However, the potential scope of such risk diversification can be limited if investments are concentrated in only one country, or more specifically one currency. Multi-currency portfolio is an alternative to achieve higher returns and m...
متن کاملRisk Management for International Investment Portfolios using forward contracts and Options∗
We present a framework for managing international investment portfolios. There are two different risk factors affecting this problem; the market risk and the currency risk. We develop models that address these risk factors in an integrated manner. Our framework has three fundamental components. The first component is the scenario generation procedure. The scenarios are generated so that the fir...
متن کاملA Portfolio Theory of International Capital Flows
This paper constructs a model in which the currency composition of national portfolios is an essential element in facilitating capital ows between countries. In a two country environment, each country chooses optimal nominal bond portfolios in face of real and nominal risk. Current account de cits are nanced by increases in domestic currency debt, but balanced by increases in foreign currency...
متن کاملConditional Currency Hedging and Asset Market Shocks
How investors should hedge the currency risk component of their international stock portfolios is the subject of much debate. In this paper, we add to the existing literature in a number of ways. First, we focus on conditional portfolio and hedging decisions by using a recursive vector autoregression model to identify a shock arising in the money, equity or currency markets. We treat all of the...
متن کامل