Optimal currency diversification for a class of risk-averse international investors
1983; Elsevier BV; Volume: 5; Linguagem: Inglês
10.1016/0165-1889(83)90020-9
ISSN1879-1743
Autores Tópico(s)Financial Markets and Investment Strategies
ResumoIn the framework of continuous-time finance theory, this paper derives the dynamic optimal consumption and portfolio rules for a risk-averse international investor who consumes in fixed proportions goods produced in N different countries and holds the respective N currencies. Restricting the processes generating N currency prices and exchange rates to follow Brownian motion, optimal portfolios of eight major currencies are presented, showing substantial departures from the expenditure shares and from purchasing power parity. Thus, even under infinite risk aversion, investors consuming only one good would hold a diversified currency portfolio.
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