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International Diversification Benefits with Foreign Exchange Investment Styles
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
 
ID 2828609
Author(s) Kröncke, Tim A.; Schindler, Felix; Schrimpf, Andreas
Author(s) at UniBasel Kröncke, Tim
Year 2014
Title International Diversification Benefits with Foreign Exchange Investment Styles
Journal Review of Finance
Volume 18
Number 5
Pages / Article-Number 1847-1883
Abstract Style-based management of the foreign exchange (FX) component of international investments with carry trade, FX momentum, and FX value strategies provides economically large and significant diversification benefits. These speculative benefits go beyond the hedging benefits of FX risk documented in the earlier literature. Our results hold after transaction costs and are confirmed in an extensive out-of-sample experiment mimicking investor decisions in real time. Adding a composite FX style portfolio to diversified allocations of global bonds and stocks leads to a 64% increase in the out-of-sample Sharpe ratio from 0.64 to 1.05, without adverse impact on other portfolio characteristics such as skewness.
Publisher OXFORD UNIV PRESS
edoc-URL http://edoc.unibas.ch/50918/
Full Text on edoc No
Digital Object Identifier DOI 10.1093/rof/rft047
ISI-Number 000340044500007
Document type (ISI) Article
 
   

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