Stephanos Papadamou and Stavros Tsopoglou
Outlines previous research on international investment portfolios and presents a study of diversification and hedging on money market, bond and equity funds from UK, US and…
Abstract
Outlines previous research on international investment portfolios and presents a study of diversification and hedging on money market, bond and equity funds from UK, US and Japanese investors’ points of view. Explains the methodology, uses 1995‐1998 data to calculate returns and discusses the results. Suggests that foreign bonds and equities reduce exchange rate risk more effectively than money market instruments, although some of that risk is not diversifiable. Compares the benefits of diversification and hedging for investors in the three countries at different levels of risk and concludes that optimum asset allocation depends on the fund market characteristics, risk preferences and investor perspective.
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Stephanos Papadamou and Stavros Tsopoglou
Reviews previous research on exchange rate forecasting, identifies some problems in building a predictive model and examines the profitability of using various technical rules (as…
Abstract
Reviews previous research on exchange rate forecasting, identifies some problems in building a predictive model and examines the profitability of using various technical rules (as used by traders) in the USD/DM and USD/BP foreign exchange markets. Takes 1989‐1996 data, divided into two sub‐periods with different macroeconomic features; and compares the results from the technical rules in detail and with a buy and hold strategy. Finds that no rules produced statistically significant profits for the whole period (although they did for the first sub‐period) and some evidence that buy and hold is superior, especially if risk is taken into account. Considers the implications of the findings and the underlying reasons for them.