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Conditional currency hedging for international equity portfolio

Kopats, Raman; Chudovets, Tsvitana
Master thesis
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URI
http://hdl.handle.net/11250/2477144
Date
2017
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  • Master of Science [1117]
Abstract
The given study focuses on international equity portfolios based in seven

developed economies and examines whether conditional approach to unitary,

universal, and minimum variance currency hedging outperforms the commonly

used unconditional approach in terms of minimizing risk without compromising

returns. Capturing the period from 1980 until 2016, the out-of-sample Sharpe ratio

results reveal that for six out of seven observed countries the conditional approach

outperforms the unconditional for all examined hedging strategies. The obtained

results lack statistical significance, which can be attributed to inconsistent

performance of conditional hedging during the global financial crisis, as well as

the problems with the forecasting indicator and estimation errors in hedging

weights. Yet, the study reveals a big potential of conditional currency hedging for

equity investors and points toward the factors which can further improve the given

strategy.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2017
Publisher
BI Norwegian Business School

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