A Dynamic Currency Hedge Ratio Analysis For Global Equity Portfolio

For global equity investors,deciding whether and how to hedge foreign exchange will significantly affect portfolio risks and returns,and the optimal ratio of currency hedge is related to expected changes in exchange rates and correlations within the currencies themselves and with stocks.The risk-adjusted return of the global stock portfolio after currency hedging was used as an objective function to try to optimize the currency hedging strategy.Focusing on the ten market-cap weighted developed and emerging stock market investment portfolios and under the assumption that the uncovered interest rate parity,this paper constructs a dynamic hedging strategy that considers actual interest rate spread,risk appetite,commodity prices,and momentum factors.In the case of U.S.investors,compared to the other 10 static hedging strategies,this dynamic hedging strategy will significantly increase the portfolio's risk-adjusted return,and provide investors with a "hedging signal" for each type of foreign currency asset based on the rules.