Mark R. Eaker

Cross-hedging foreign currency risk

Abstract This paper provides empirical evidence on the effectiveness of cross-hedging to reduce foreign exchange risk. Simple cross-hedges for currencies with and without futures contracts, multiple cross-hedges, portfolio hedges, and commodity cross-hedges are examined. Cross-hedges are found to be less effective than traditional similar-asset hedges. In some instances inter-temporal instability causes hedged positions to be riskier than unhedged ones although on the whole cross-hedging is shown to be a useful risk reduction technique.

International diversification and hedging: A Japanese and U.S. perspective

Abstract The research examines international equity diversification from the perspectives of Japanese and U.S. American investors. It looks at the degree of risk reduction achieved through diversification as well as the impact of currency exposure on the riskiness of equity portfolios. The comparison of U.S. and Japanese perspectives indicates the importance of the numeraire in evaluating portfolio performance and currency risk management.

The Wealth Effects of Portfolio Rebalancing in Emerging Equity Markets

Abstract This paper analyzes the wealth effects of alternative portfolio rebalancing strategies for equity investments in nine emerging markets for the period from 1976 to 1998. The choice of rebalancing intervals has a large effect on wealth accumulation and the geometric mean return. The difference between no rebalancing and semi-annual rebalancing is 5.87 percentage points per year. Surprisingly, semi-annual rebalancing, which was optimal for this data set, was also 2.62 percentage points per year better than monthly rebalancing. Positive first- and second-degree autocorrelation among the monthly returns appears to account for the decrease in returns for rebalancing more frequently than semi-annually.