IS IT PROFITABLE TO HEDGE EXCHANGE RATE RISK IN A GLOBAL PORTFOLIO FROM THE PERSPECTIVE OF A COLOMBIAN INVESTOR? (Article published in Spanish)
DOI:
https://doi.org/10.1016/S0123-5923(11)70170-XKeywords:
International diversification, minimum global variance portfolio, variable income, volatility, exchange rate risk hedgingAbstract
This study looks for gains in terms of efficiency for local investors with an internationally diversified portfolio by hedging the exchange risk. To estimate an optimum portfolio with a minimum variance we used a robust methodology which allowed us to make statistical inference and prove that international diversification reduces portfolio risk for local investors. This methodology is applied to stock portfolios held by a Colombian and a Mexican investor, and the conclusion is that hedging exchange rate risk can reduce the risk of the portfolio, with the possible exception of a high negative correlation between the exchange rate and the local stock index.
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