{"title":"FX-hedging for Latin American investors","authors":"Rodrigo Alfaro , Natan Goldberger","doi":"10.1016/j.ememar.2024.101117","DOIUrl":null,"url":null,"abstract":"<div><p>In this paper, we conduct an empirical evaluation of currency hedging (FXH) strategies designed for Latin American investors managing portfolios of US assets with performance measured in their local currency. By analyzing the volatility and value-at-risk (VaR) of the hedged portfolio, our results reveal that FXH is inefficient in lowering portfolio risk when applied to underlying foreign risk-assets like equities and low credit quality corporate bonds. Conversely, a significant reduction in volatility is evident with FXH when the investments are in safer assets, such as high-grade government and corporate bonds.</p></div>","PeriodicalId":47886,"journal":{"name":"Emerging Markets Review","volume":"59 ","pages":"Article 101117"},"PeriodicalIF":5.6000,"publicationDate":"2024-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Emerging Markets Review","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1566014124000128","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
In this paper, we conduct an empirical evaluation of currency hedging (FXH) strategies designed for Latin American investors managing portfolios of US assets with performance measured in their local currency. By analyzing the volatility and value-at-risk (VaR) of the hedged portfolio, our results reveal that FXH is inefficient in lowering portfolio risk when applied to underlying foreign risk-assets like equities and low credit quality corporate bonds. Conversely, a significant reduction in volatility is evident with FXH when the investments are in safer assets, such as high-grade government and corporate bonds.
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The intent of the editors is to consolidate Emerging Markets Review as the premier vehicle for publishing high impact empirical and theoretical studies in emerging markets finance. Preference will be given to comparative studies that take global and regional perspectives, detailed single country studies that address critical policy issues and have significant global and regional implications, and papers that address the interactions of national and international financial architecture. We especially welcome papers that take institutional as well as financial perspectives.
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