Impact of investment horizon on currency portfolio diversification
International managers need to manage foreign exchange rate risks effectively in order to maximize the value of the firm. Modern portfolio theory suggests that exchange rate risks can be reduced through currency portfolio diversification. However, little attention has been paid in the literature to the impact of different investment horizons on the effectiveness of currency portfolio diversification. The information is important to international managers in planning their future holding intervals of currency portfolios. This paper provides empirical results on this topic using 13 countries' exchange prices as to the Hong Kong dollar. Our results show that with an increase in the investment horizon, the correlations between currency returns increase in general, causing the benefits of diversification to decrease. The results suggest that a delayed adjustment pattern exists among different currencies; however, the patterns are different for different currencies.
Year of publication: |
1996
|
---|---|
Authors: | Tang, Gordon Y. N. |
Published in: |
International Business Review. - Elsevier, ISSN 0969-5931. - Vol. 5.1996, 1, p. 99-116
|
Publisher: |
Elsevier |
Subject: | Investment Horizon Currency Portfolio Diversification |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Tang, Gordon Y. N., (2003)
-
The relationships between unsystematic risk, skewness and stock returns during up and down markets
Tang, Gordon Y. N., (2003)
-
Impact of the day-of-the-week effect on diversification of exchange rate risks
Tang, Gordon Y. N., (1997)
- More ...