1 September 1993Financial Analysts JournalVolume 49, Issue 5
The Merits of Active Currency Risk Management: Evidence from International Bond Portfolios
Richard M. Levich
Lee R. Thomas
A new statistical procedure tests for weak-form efficiency in the foreign exchange futures markets. On the basis of daily currency futures prices for the 1976 - 90 period, this procedure indicates that successive exchange rate changes have not been independent.This finding has implications for at least two groups of investors--(1) return-seeking investors considering foreign exchange as a separate asset class and (2) international portfolio investors deciding whether or not to hedge the foreign exchange rate exposures embedded in their nondollar investments. For both types of investor, active currency risk management based on a simple application of technical trading signals can improve substantially upon the risk-return profiles of passive currency strategies.
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Financial Analysts Journal
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Association for Investment Management and Research
8 pages doi.org/10.2469/faj.v49.n5.63ISSN/ISBN: 0015-198X
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