Just as corporations have to deal with “forecasting error” in terms of the deviation of forecast exchange rates relative to the actual future rate, so investors have to deal with “tracking error” within their portfolios, which is the return of the portfolio relative to the investment benchma[...]
Posts Tagged ‘risk’
July 3rd, 2009 - 8:34 am § in Currency
Adding “Alpha”
The motive of risk reduction is primarily defensive, in that it seeks to defend or maintain the portfolio’s return within a given tolerance of overall risk. That for adding “alpha” on the other hand is quite different, in so much as “alpha” refers to the excess return generated by an activ[...]
July 2nd, 2009 - 8:34 am § in Management
HEDGING — MANAGEMENT RELUCTANCE AND INTERNAL METHODS
Having looked in detail at the issue of managing currency risk, we should now be looking at the specifics of how to hedge that risk. Before we do that, we first have to examine the issue of management reluctance to hedge a risk many see as merely an operational hazard of international investment. So[...]