| The Estimation of Appropriate Currency Hedge Ratios for Korea Pension Fund`s Overseas Investments |
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Sang-chul Joo |
| 연기금의 해외투자 시 적정 환헤지 비율 추정 |
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주상철 |
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| Abstract |
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This paper is intended to find the appropriate U.S dollar hedge ratios by estimating optimal dollar exposure demands and hedge ratios which minimize the volatility of returns for the following 3 cases, when Korean pension funds invested overseas over the period 2002~2015. First, in case of investing in both domestic and overseas stock markets, the appropriate hedge ratio is found to be 0% as a result of estimation of optimal exposures and hedge ratios. Second, in case of investing in both domestic and overseas bond markets, the appropriate hedge ratio is found to be 80~85%. Third, the appropriate hedge ratio for total portfolio which includes both socks and bonds investments is found to be 0% as a result of estimation of optimal hedge ratio which minimize return of the total portfolio. When the appropriate hedge ratios are applied to the overseas stock portfolio, bond portfolio and total portfolio, the effect of volatility reduction of the appropriate hedge ratio is shown to be greater than the effect of other hedge ratios. The results of these comparisons mean that the hedge ratios which are found in this paper are desirable for the purpose of reduction of volatility. However, the average returns of stocks, bonds, and total portfolio are shown to be the greatest in case of full hedge because U.S dollar had been depreciated against Won on average during the data period. |
| Key Words:
통화 익스포저 수요,평균-분산 최적화,해외투자,환헤지 비율,환헤지 효과,Currency Exposure Demands,Currency Hedge Ratio,Effect of Currency Hedge,Mean-Variance Optimization,Overseas Investment |
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