The Optimal Currency Hedging Policy with Biased Forward Rates

Effect of exchange rate risk on intra-EC trade

“…This view is equivalent to the assumption that a currency forward contract has an expected return of 0 percent. The evidence, however, strongly contradicts this view (Kritzman, 1993). Moreover, as Froot (1993) shows, at longer horizons many fully hedged international investments ac-tually have greater return variance than their hedged counterparts.…”

An Overview of Managed Futures' Performance: 1983 to Post‐2008 Credit Crisis

“…Bhardwaj et al (2008) Chen, Neill, and Zhu (2005) report that the key foundation for futures returns, as posited by some practitioners and academics, is the risk transfer function of the futures market itself (Kritzman, 1993;Lightner, 2003;Spurgin, 2003). Some commercial market participants such as hedgers are willing to pay the equivalent of an insurance premium to non-commercial participants (i.e., investors) for assuming risk.…”

Behavioral currency hedging for international portfolios

“…Adler and Prasad (1992) weaken some of the underlying assumptions and generalize Black's result by substituting universal hedges with regression hedges. Glen and Jorion (1993), and Kritzman (1993a) are examples of the use of mean-variance optimization as a cost-benefit analysis for currency hedging. The risk-minimizing hedge ratio becomes 100% plus or minus a component that is determined by the covariances of the forward currency returns with excess returns from the domestic and international parts of the portfolio.…”