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On Universal Currency Hedges

Published online by Cambridge University Press:  06 April 2009

Michael Adler  and
Bhaskar Prasad
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Abstract

This paper identifies five universal currency hedge ratio (UHR) definitions. These are hedge positions in foreign bonds, stated as a fraction of national or global equity portfolios, that are the same for all investors, regardless of nationality. The first three involve the total demand for foreign bonds and depend on equities not being held for hedging purposes. The last two are associated with variance-minimizing regression hedges. These hold, in general, but are designed exclusively for hedging other traded asset positions. Jensen's inequality makes the choice of measurement currency irrelevant and makes the HRs universal without affecting their values.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 27 , Issue 1 , March 1992 , pp. 19 - 38
Copyright
Copyright © School of Business Administration, University of Washington 1992

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