December 2, 2024, 11:00–12:30
Toulouse
Room Auditorium 3
Finance Seminar
Abstract
Using comprehensive new contract level data (EMIR) for the period 2019-2023, we explore how the FX derivative trading by European funds compares to a feasible theoretical benchmark of optimal hedging. We find that hedging behavior by all fund types is often partial, unitary (i.e., with a single currency focus), and sub-optimal. Overall, the observed FX derivative trading does not significantly reduce the return risk of the average European investment funds, even though optimal hedging strategies could do so without incurring substantial trading costs.
Keywords
Global Currency Hedging, Institutional Investors, Mean-Variance Optimization;
JEL codes
- E44: Financial Markets and the Macroeconomy
- F31: Foreign Exchange
- F32: Current Account Adjustment • Short-Term Capital Movements
- G11: Portfolio Choice • Investment Decisions
- G15: International Financial Markets
- G23: Non-bank Financial Institutions • Financial Instruments • Institutional Investors