{"title":"歧义、最优货币叠加和本国货币偏差","authors":"Urban Ulrych, N. Vasiljević","doi":"10.2139/ssrn.3683821","DOIUrl":null,"url":null,"abstract":"This paper addresses the problem of determining an optimal currency allocation for a risk-and-ambiguity-averse international investor. A robust mean-variance model with smooth ambiguity preferences is used to derive the optimal currency exposure. The theoretical part of the paper shows that the sample-efficient currency demand can be calculated as the solution to a generalized ridge regression. Through the lens of these results, we demonstrate that our model offers a new explanation of the home currency bias as the optimal currency allocation under extreme ambiguity aversion. The investor's dislike for model uncertainty induces a disproportionately high currency hedging demand. The empirical analysis demonstrates how ambiguity leads to a larger estimation bias and simultaneously narrows the confidence interval of the optimal currency exposure. The out-of-sample backtest illustrates that accounting for ambiguity enhances the stability of optimal currency allocation and significantly improves the risk-adjusted portfolio performance net of transaction costs.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2020-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":"{\"title\":\"Ambiguity, Optimal Currency Overlay, and Home Currency Bias\",\"authors\":\"Urban Ulrych, N. Vasiljević\",\"doi\":\"10.2139/ssrn.3683821\",\"DOIUrl\":null,\"url\":null,\"abstract\":\"This paper addresses the problem of determining an optimal currency allocation for a risk-and-ambiguity-averse international investor. A robust mean-variance model with smooth ambiguity preferences is used to derive the optimal currency exposure. The theoretical part of the paper shows that the sample-efficient currency demand can be calculated as the solution to a generalized ridge regression. Through the lens of these results, we demonstrate that our model offers a new explanation of the home currency bias as the optimal currency allocation under extreme ambiguity aversion. The investor's dislike for model uncertainty induces a disproportionately high currency hedging demand. The empirical analysis demonstrates how ambiguity leads to a larger estimation bias and simultaneously narrows the confidence interval of the optimal currency exposure. The out-of-sample backtest illustrates that accounting for ambiguity enhances the stability of optimal currency allocation and significantly improves the risk-adjusted portfolio performance net of transaction costs.\",\"PeriodicalId\":20949,\"journal\":{\"name\":\"PSN: Exchange Rates & Currency (Comparative) (Topic)\",\"volume\":null,\"pages\":null},\"PeriodicalIF\":0.0000,\"publicationDate\":\"2020-08-28\",\"publicationTypes\":\"Journal Article\",\"fieldsOfStudy\":null,\"isOpenAccess\":false,\"openAccessPdf\":\"\",\"citationCount\":\"1\",\"resultStr\":null,\"platform\":\"Semanticscholar\",\"paperid\":null,\"PeriodicalName\":\"PSN: Exchange Rates & Currency (Comparative) (Topic)\",\"FirstCategoryId\":\"1085\",\"ListUrlMain\":\"https://doi.org/10.2139/ssrn.3683821\",\"RegionNum\":0,\"RegionCategory\":null,\"ArticlePicture\":[],\"TitleCN\":null,\"AbstractTextCN\":null,\"PMCID\":null,\"EPubDate\":\"\",\"PubModel\":\"\",\"JCR\":\"\",\"JCRName\":\"\",\"Score\":null,\"Total\":0}","platform":"Semanticscholar","paperid":null,"PeriodicalName":"PSN: Exchange Rates & Currency (Comparative) (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3683821","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
Ambiguity, Optimal Currency Overlay, and Home Currency Bias
This paper addresses the problem of determining an optimal currency allocation for a risk-and-ambiguity-averse international investor. A robust mean-variance model with smooth ambiguity preferences is used to derive the optimal currency exposure. The theoretical part of the paper shows that the sample-efficient currency demand can be calculated as the solution to a generalized ridge regression. Through the lens of these results, we demonstrate that our model offers a new explanation of the home currency bias as the optimal currency allocation under extreme ambiguity aversion. The investor's dislike for model uncertainty induces a disproportionately high currency hedging demand. The empirical analysis demonstrates how ambiguity leads to a larger estimation bias and simultaneously narrows the confidence interval of the optimal currency exposure. The out-of-sample backtest illustrates that accounting for ambiguity enhances the stability of optimal currency allocation and significantly improves the risk-adjusted portfolio performance net of transaction costs.