Hedging with an Edge: Parametric Currency Overlay

References

• Ang A (2014) Asset Management: A Systematic Approach to Factor Investing (Oxford University Press, Oxford, UK).Crossref, Google Scholar
• Asness CS, Moskowitz TJ, Pedersen LH (2013) Value and momentum everywhere. J. Finance 68(3):929–985.Crossref, Google Scholar
• Bank of England (2015) Explanatory notes: spot exchange rates. Accessed October 6, 2016, http://www.bankofengland.co.uk/statistics/pages/iadb/notesiadb/Spot\rates.aspx.Google Scholar
• Barroso P, Santa-Clara P (2015) Beyond the carry trade: Optimal currency portfolios. J. Financial Quantitative Anal. 50(5):1037–1056.Crossref, Google Scholar
• Bekaert G, Urias MS (1996) Diversification, integration and emerging market closed-end funds. J. Finance 51(3):835–869.Crossref, Google Scholar
• Black F (1989) Universal hedging: Optimizing currency risk and reward in international equity portfolios. Financial Anal. J. 45(4):16–22.Crossref, Google Scholar
• Black F, Litterman R (1992) Global portfolio optimization. Financial Anal. J. 48(5):28–43.Crossref, Google Scholar
• Brandt MW, Santa-Clara P, Valkanov R (2009) Parametric portfolio policies: Exploiting characteristics in the cross-section of equity returns. Rev. Financial Stud. 22(9):3411–3447.Crossref, Google Scholar
• Burnside C, Eichenbaum M, Kleshchelski I, Rebelo S (2010) Do peso problems explain the returns to the carry trade? Rev. Financial Stud. 24(3):853–891.Crossref, Google Scholar
• Campbell JY, Chan YL, Viceira LM (2003) A multivariate model of strategic asset allocation. J. Financial Econom. 67(1):41–80.Crossref, Google Scholar
• Campbell JY, Serfaty-De Medeiros K, Viceira LM (2010) Global currency hedging. J. Finance 65(1):87–121.Crossref, Google Scholar
• Chen Hl, Pennacchi GG (2009) Does prior performance affect a mutual fund’s choice of risk? Theory and further empirical evidence. J. Financial Quantitative Anal. 44(4):745–775.Crossref, Google Scholar
• Cochrane JH (2009) Asset Pricing, Revised ed. (Princeton University Press, Princeton, NJ).Google Scholar
• De Jong A, De Roon F, Veld C (1997) Out-of-sample hedging effectiveness of currency futures for alternative models and hedging strategies. J. Futures Markets 17(7):817.Google Scholar
• De Roon FA, Eiling E, Gerard B, Hillion P (2012) Currency risk hedging: No free lunch. Working paper, Tilburg University, Tilburg, Netherlands.Google Scholar
• De Roon FA, Nijman TE, Werker BJ (2001) Testing for mean-variance spanning with short sales constraints and transaction costs: The case of emerging markets. J. Finance 56(2):721–742.Crossref, Google Scholar
• De Roon FA, Nijman TE, Werker BJ (2003) Currency hedging for international stock portfolios: The usefulness of mean–variance analysis. J. Banking Finance 27(2):327–349.Crossref, Google Scholar
• Della Corte P, Riddiough SJ, Sarno L (2016) Currency premia and global imbalances. Rev. Financial Stud. 29(8):2161–2193.Crossref, Google Scholar
• DeMiguel V, Uppal R (2005) Portfolio investment with the exact tax basis via nonlinear programming. Management Sci. 51(2):277–290.Link, Google Scholar
• DeMiguel V, Garlappi L, Uppal R (2009) Optimal vs. naive diversification: How inefficient is the 1/n portfolio strategy? Rev. Financial Stud. 22(5):1915–1953.Crossref, Google Scholar
• DeMiguel V, Martín-Utrera A, Nogales FJ (2015) Parameter uncertainty in multiperiod portfolio optimization with transaction costs. J. Financial Quantitative Anal. 50(6):1443–1471.Crossref, Google Scholar
• DeMiguel V, Martin-Utrera A, Nogales FJ, Uppal R (2020) A transaction-cost perspective on the multitude of firm characteristics. Rev. Financial Stud. 33(5):2180–2222.Crossref, Google Scholar
• DeMiguel V, Plyakha Y, Uppal R, Vilkov G (2013) Improving portfolio selection using option-implied volatility and skewness. J. Financial Quantitative Anal. 48(6):1813–1845.Crossref, Google Scholar
• Eun CS, Resnick BG (1988) Exchange rate uncertainty, forward contracts, and international portfolio selection. J. Finance 43(1):197–215.Crossref, Google Scholar
• Faias JA, Santa-Clara P (2017) Optimal option portfolio strategies: Deepening the puzzle of index option mispricing. J. Financial Quantitative Anal. 52(1):277–303.Crossref, Google Scholar
• Fama EF (1976) Forward rates as predictors of future spot rates. J. Financial Econom. 3(4):361–377.Crossref, Google Scholar
• Filippou I, Gozluklu AE, Taylor MP (2018) Global political risk and currency momentum. J. Financial Quantitative Anal. 53(5):2227–2259.Crossref, Google Scholar
• Froot KA (2019) Currency hedging over long horizons. Ann. Econom. Finance 20(1):37–66.Google Scholar
• Gârleanu N, Pedersen LH (2013) Dynamic trading with predictable returns and transaction costs. J. Finance 68(6):2309–2340.Crossref, Google Scholar
• Gastineau GL (1995) The currency hedging decision: A search for synthesis in asset allocation. Financial Anal. J. 52(3):8–17.Crossref, Google Scholar
• Glen J, Jorion P (1993) Currency hedging for international portfolios. J. Finance 48(5):1865–1886.Crossref, Google Scholar
• Howard CT, D’Antonio LJ (1984) A risk-return measure of hedging effectiveness. J. Financial Quantitative Anal. 19(1):101–112.Crossref, Google Scholar
• Jorion P (1985) International portfolio diversification with estimation risk. J. Bus. 58(3):259–278.Crossref, Google Scholar
• Jorion P (1986) Bayes-stein estimation for portfolio analysis. J. Financial Quantitative Anal. 21(3):279–292.Crossref, Google Scholar
• Jorion P (1994) Mean/variance analysis of currency overlays. Financial Anal. J. 50(3):48–56.Crossref, Google Scholar
• Jorion P (2003) Portfolio optimization with tracking-error constraints. Financial Anal. J. 59(5):70–82.Crossref, Google Scholar
• Jylhä P, Suominen M (2011) Speculative capital and currency carry trades. J. Financial Econom. 99(1):60–75.Crossref, Google Scholar
• Koijen RS, Moskowitz TJ, Pedersen LH, Vrugt EB (2018) Carry. J. Financial Econom. 127(2):197–225.Crossref, Google Scholar
• Koski JL, Pontiff J (1999) How are derivatives used? Evidence from the mutual fund industry. J. Finance 54(2):791–816.Crossref, Google Scholar
• Kroencke TA, Schindler F, Schrimpf A (2013) International diversification benefits with foreign exchange investment styles. Rev. Finance 18(5):1847–1883.Crossref, Google Scholar
• Ledoit O, Wolf M (2008) Robust performance hypothesis testing with the sharpe ratio. J. Empirical Finance 15(5):850–859.Crossref, Google Scholar
• Lesmond DA, Schill MJ, Zhou C (2004) The illusory nature of momentum profits. J. Financial Econom. 71(2):349–380.Crossref, Google Scholar
• Lo AW (2004) The adaptive markets hypothesis. J. Portfolio Management 30(5):15–29.Crossref, Google Scholar
• Lustig H, Verdelhan A (2007) The cross section of foreign currency risk premia and consumption growth risk. Amer. Econom. Rev. 97(1):89–117.Crossref, Google Scholar
• Lustig H, Roussanov N, Verdelhan A (2011) Common risk factors in currency markets. Rev. Financ. Stud. 24(11):3731–3777.Crossref, Google Scholar
• Lustig H, Roussanov N, Verdelhan A (2014) Countercyclical currency risk premia. J. Financial Econom. 111(3):527–553.Crossref, Google Scholar
• Menkhoff L, Sarno L, Schmeling M, Schrimpf A (2012a) Carry trades and global foreign exchange volatility. J. Finance 67(2):681–718.Crossref, Google Scholar
• Menkhoff L, Sarno L, Schmeling M, Schrimpf A (2012b) Currency momentum strategies. J. Financial Econom. 106(3):660–684.Crossref, Google Scholar
• Menkhoff L, Sarno L, Schmeling M, Schrimpf A (2017) Currency value. Rev. Financial Stud. 30(2):416–441.Crossref, Google Scholar
• Michaud RO (1989) The Markowitz optimization enigma: Is “optimized” optimal? Financial Anal. J. 45(1):31–42.Crossref, Google Scholar
• Neely CJ, Weller PA, Ulrich JM (2009) The adaptive markets hypothesis: Evidence from the foreign exchange market. J. Financial Quantitative Anal. 44(2):467–488.Crossref, Google Scholar
• Okunev J, White D (2003) Do momentum-based strategies still work in foreign currency markets? J. Financial Quantitative Anal. 38(2):425–447.Crossref, Google Scholar
• Perold AF, Schulman EC (1988) The free lunch in currency hedging: Implications for investment policy and peformance standards. Financial Anal. J. 44(3):45–50.Crossref, Google Scholar
• Pojarliev M, Levich RM (2008) Do professional currency managers beat the benchmark? Financial Anal. J. 64(5):18–32.Crossref, Google Scholar
• Pojarliev M, Levich RM (2013) A New Look at Currency Investing (CFA Institute Research Foundation Monograph, Charlottesville, VA).Google Scholar
• Roll R (1992) A mean/variance analysis of tracking error. J. Portfolio Management 18(4):13–22.Crossref, Google Scholar
• Sensoy BA (2009) Performance evaluation and self-designated benchmark indexes in the mutual fund industry. J. Financial Econom. 92(1):25–39.Crossref, Google Scholar
• Solnik BH (1974) The international pricing of risk: An empirical investigation of the world capital market structure. J. Finance 29(2):365–378.Crossref, Google Scholar
• White H (1980) Using least squares to approximate unknown regression functions. Internat. Econom. Rev. 21(1):149–170.Crossref, Google Scholar
• Wolff CC (1987) Forward foreign exchange rates, expected spot rates, and premia: A signal-extraction approach. J. Finance 42(2):395–406.Crossref, Google Scholar