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Currency hedging and quantitative easing: Evidence from global bond markets
Author(s) -
Kryzanowski Lawrence,
Zhang Jie,
Zhong Rui
Publication year - 2021
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12291
Subject(s) - treasury , quantitative easing , bond , economics , monetary economics , currency , financial economics , financial system , econometrics , central bank , monetary policy , finance , archaeology , history
We examine the influence of quantitative easing (QE) in the United States on hedging effectiveness and performance (E&P) of international bond portfolios. During the QE period, the bond portfolios have significantly lower excess returns and variances, and their excess returns (variances) are positive (negative) with the U.S. Federal Reserve's (Fed's) mortgage‐backed securities holdings and are less positive (less negative) with the Fed's Treasury holdings. E&P is higher for optimal versus full hedging during the QE versus pre‐QE period and differs for portfolios from developed and emerging countries. Results are robust using other hedging E&P measures and excluding countries with their own QEs implementations.