Template-type: ReDIF-Paper 1.0
Author-Name: Beatriz de la Flor
Author-Email: beatriz.de.la.flor.de.pablos@es.ey.com
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE (Spain).
Author-Name: Javier Ojea-Ferreiro
Author-Email: javier.ojea-ferreiro@ec.europa.eu
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE (Spain).
Author-Name: Eva Ferreira
Author-Email: eva.ferreira@ehu.eus
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE (Spain).
Title: The Hedging Cost of Forgetting the Exchange Rate
Abstract: The safe-haven property of gold has been widely studied, although little attention has been paid to how exchange rate movements could affect hedging strategies. We 
	analyse the exchange rate role in stock portfolios hedged with gold in several regions from the point of view of non-US and US investors, using vine copulas to model 
	the relation between gold, stock and exchange rates.
	We find a leading role played by exchange rate hedging stock losses, which outstrips the position of gold (index) in non-US (US) portfolios. The inclusion of the 
	exchange rate can reduce the ES between 107 and 162 bps. An out-of-sample exercise supports our results.
	The implications of this study go beyond risk management decisions. Regulatory and supervisory authorities might find tools to assess the performance of financial 
	assets under market distress scenarios.
Classification-JEL: C52, C58, C61, F13, G1.
Keywords: Exchange rate risk; Hedging strategy; Risk measures; Tail dependence; Vine copula.
Length: 57 pages 
Creation-Date: 2022
Number: 2022-01
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae2201.txt
File-URL: https://eprints.ucm.es/id/eprint/70098/1/2201.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:2201