This paper examines the optimal production, export allocation and hedging decisions of a risk-averse international firm that exports to several foreign markets with different currencies. The firm faces multiple exchange rate risks. Optimal decisions are analyzed under two scenarios. In the...

We analyze the effect of European Union (EU) membership on financial dollarization for the Central and Eastern European countries. Using a unique monthly dataset that spans about two decades, we find that both the accession process toward EU membership and EU entry have a direct impact on...

DeMiguel, Garlappi, and Uppal (Review of Financial Studies, 22 (2009), 1915-1953) showed that in the stock market, it is difficult for an optimized portfolio constructed using mean-variance analysis to outperform a simple equally-weighted portfolio because of estimation error. In this paper, we...

We develop a two-country international asset pricing model in which investors are heterogeneous. Exchange rate dynamics give rise to a currency risk premium, uncovered interest parity is violated. Countries whose output growth is expected to be sufficient to satisfy growth in demand have high...

Abating dominance of the US Dollars (US$) as an asset class notwithstanding, the truly structural question is whether it ought to remain the universal numeraire by which sizes and risk-return performances of international reserves and sovereign wealth funds (henceforth sovereign portfolios) are...

We develop a two-country international asset pricing model in which some investors face leverage constraints. In contrast to models with a single `world' bond, we show that tightening regulation can lead to the risk free interest rate rising. When demand for borrowing is high, a tightening of...

In this paper, we measure currency carry trade funding risk using stock market volatility and crash risk in Japan, the main funding currency country. We show that the measures of funding risk in Japan can explain 42% of the monthly currency carry trade returns during our sample period,...

We study currency risk management in the context of scenario analysis. We develop scenario-based optimization models that jointly determine the portfolio composition and the hedging strategy within each currency. Thus the model prescribes optimal selective hedging policies. We then study...