Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection

Eun, Cheol S.; Resnick, Bruce G.

doi:10.2307/2328331

Cited by 95 publications

(27 citation statements)

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“…Table 2B shows most CTA indexes to have relatively lower LPM ranging from 0.06% to 0.11%. Among them, the diversified, 13 The countries selected are the same as those in Eun & Resnick (1988). It is in the currencies of these countries that the UK investors can hedge currency risk via a well-developed forward market.…”

Section: Datamentioning

confidence: 99%

“…Using the currency forward contracts has the advantage of potentially reducing the variability of assets' returns, which is in the investors' favour. See Eun & Resnick (1988) We use the n-degree portfolio LPM algorithm to model the portfolio downside risk presented in Nawrocki (1991) and Moreno et al (2005). The following presents the minimum n-degree portfolio LPM formulations…”

Section: Datamentioning

confidence: 99%

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The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

Tee

2009

International Review of Financial Analysis

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Section: Datamentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

Tee

2009

International Review of Financial Analysis

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“…Recall that we are multiplying two different sources of returns: the local asset and the currency returns. A common approximation to this problem, initially proposed by Eun and Resnick [9], is to consider the total return on assets as the sum between the local asset returns and the currency returns. In the following subsection, we present an alternative semidefinite programming approach, where a linear function is maximized subject to the constraint that an affine combination of symmetric matrices is positive semidefinite [30].…”

Section: The Robust Model Of International Portfolio Optimizationmentioning

confidence: 99%

“…Eun and Resnick [9] question previous studies on the benefits of international diversification, as these did not take into account the uncertainty related to the estimation of the returns. Moreover, they alert for the risk associated with fluctuating exchange rates, as unfavorable movements have the potential to override asset gains.…”

Section: Introductionmentioning

confidence: 97%

Robust international portfolio management

2011

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We present an international portfolio optimization model where we take into account the two different sources of return of an international asset: the local returns denominated in the local currency, and the returns on the foreign exchange rates. The explicit consideration of the returns on exchange rates introduces non-linearities in the model, both in the objective function (return maximization) and in the triangulation requirement of the foreign exchange rates. The uncertainty associated with both types of returns is incorporated directly in the model by the use of robust optimization techniques. We show that, by using appropriate assumptions regarding the formulation of the uncertainty sets, the proposed model has a semidefinite programming formulation and can be solved efficiently. While robust optimization provides a guaranteed minimum return inside the uncertainty set considered, we also discuss an extension of our formulation with additional guarantees through trading in quanto options for the foreign assets and in equity options for the domestic assets.

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“…17 Similar to the unexpected inflation factor, unexpected changes in the dollar exchange rate is not only useful as a hedge for liability management, but may also be useful in explaining asset class behavior (Agarwal and Naik [2004]; Hasanhodzic and Lo [2007]; Ferson and Harvey [1993]; Chow et al [1997]). Further, there is general consensus regarding the advantages of hedging foreign currency exposure in fixed income and developed equities (Perold and Schulman [1988]; Kritzman [1993]; Eun and Resnick [1988]; Campbell et al [2010]). In general and at a high level, the dollar factor allows us to express portfolio-wide hedging preferences.…”

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confidence: 99%

Flexible Indeterminate Factor-Based Asset Allocation

Blyth

Szigety²,

Xia³

2016

JPM

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Asset allocation represents a fundamental strategic decision for every institutional investor.Though many asset allocation approaches have been recommended and implemented in various forms, each has its own strengths and weakness. A careful review of current asset allocation frameworks provided motivation to design a hybrid approach that addresses many of these perceived individual shortcomings. Our guiding principle was to use several familiar elements to create a flexible process that incorporates less-quantifiable investment ideas around a rigorous foundation. The result, which we term Flexible Indeterminate Factor-based Asset Allocation (FIFAA), is an adaptive four-step asset allocation synthesis that remains quantitatively and theoretically well grounded. To achieve this goal, FIFAA overlays informed judgment about investment opportunities onto an objectively derived set of core factor exposures.ACKNOWLEDGEMENTS: The authors would like to thank the following people for valuable input and feedback:

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Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection

Cited by 95 publications

References 0 publications

The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

Robust international portfolio management

Flexible Indeterminate Factor-Based Asset Allocation

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