Impact of investment horizon on currency portfolio diversification

Gordon Y N TANG*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

International managers need to manage foreign exchange rate risks effectively in order to maximize the value of the firm. Modern portfolio theory suggests that exchange rate risks can be reduced through currency portfolio diversification. However, little attention has been paid in the literature to the impact of different investment horizons on the effectiveness of currency portfolio diversification. The information is important to international managers in planning their future holding intervals of currency portfolios. This paper provides empirical results on this topic using 13 countries' exchange prices as to the Hong Kong dollar. Our results show that with an increase in the investment horizon, the correlations between currency returns increase in general, causing the benefits of diversification to decrease. The results suggest that a delayed adjustment pattern exists among different currencies; however, the patterns are different for different currencies.

Original languageEnglish
Pages (from-to)99-116
Number of pages18
JournalInternational Business Review
Volume5
Issue number1
DOIs
Publication statusPublished - Feb 1996

Scopus Subject Areas

  • Business and International Management
  • Finance
  • Marketing

User-Defined Keywords

  • Currency portfolio
  • Diversification
  • Investment horizon

Fingerprint

Dive into the research topics of 'Impact of investment horizon on currency portfolio diversification'. Together they form a unique fingerprint.

Cite this