The Effect of Currency Hedging on Risk and Return of Global Investment – Evidence from Taiwan and American Stock Market
Date Issued
2006
Date
2006
Author(s)
Tsai, Chin-I
DOI
zh-TW
Abstract
We stand in Taiwan investors’ point of view to investigate the efficacy of three simple strategies for hedging foreign exchange risk. The strategies are: to always hedge, to hedge when the forward rate is at a premium, and the optimal hedge. We compare these strategies with an unhedged strategy and find that the “always-hedge” strategy not only result in higher risk but also account for negative return. An optimal hedge strategy generally performs better than the other two hedging strategies, but the unhedged strategy outperforms all the hedging strategies. We illustrate our results using a data set of Taiwan and U.S. stock markets.
Subjects
外匯
避險
foreign currency
hedging
Type
thesis
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