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International Diversification Benefits with Foreign Exchange Investment Styles

Kröncke, Tim A. and Schindler, Felix and Schrimpf, Andreas. (2014) International Diversification Benefits with Foreign Exchange Investment Styles. Review of Finance, 18 (5). pp. 1847-1883.

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Official URL: http://edoc.unibas.ch/50918/

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Abstract

Style-based management of the foreign exchange (FX) component of international investments with carry trade, FX momentum, and FX value strategies provides economically large and significant diversification benefits. These speculative benefits go beyond the hedging benefits of FX risk documented in the earlier literature. Our results hold after transaction costs and are confirmed in an extensive out-of-sample experiment mimicking investor decisions in real time. Adding a composite FX style portfolio to diversified allocations of global bonds and stocks leads to a 64% increase in the out-of-sample Sharpe ratio from 0.64 to 1.05, without adverse impact on other portfolio characteristics such as skewness.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Corporate Finance (Kröncke)
UniBasel Contributors:Kröncke, Tim
Item Type:Article, refereed
Article Subtype:Research Article
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:17 Jul 2018 11:27
Deposited On:17 Jul 2018 11:27

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