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Currency Bias of Sovereign Wealth Fund Investments

설윤|김희호|권상욱
한국경제학회 (The Korean Economic Association)|2022.07|The Korean Economic Review|제38권 제3호|pp. 415-443|DOI 10.22841/kerdoi.2022.38.3.003

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참고문헌

키워드

Risk국부펀드헤징Hedging투자위험해외투자편향Foreign BiasSovereign Wealth Fund (SWF)Currency Bias기축통화편향
주제분류경제학

초록

This study provides an alternative explanation for the poor performance of sovereign wealth fund (SWF) investments based on key currency bias. Using the international portfolio rebalancing model and the matched firm data of 18,704 and 8,267 cases of SWFs’ cross-border investment during 1999–2017, evidence strongly supports the key currency bias hypothesis for the determination of SWFs’ cross-border investments. In sharp contrast to the relationship between the exchange rate and international portfolio flows, the economic rationale for the currency bias is to provide hedging against the exchange risk of SWFs’ cross- border investments by matching the denominated key currency of the SWF sources with the other denominated currency of foreign target assets. This study complements the existing finance literature by providing portfolio implications for analyzing cross-border investments by commercial institution investors and portfolio rebalancing of financial assets between different currency zones.

Abstract

This study provides an alternative explanation for the poor performance of sovereign wealth fund (SWF) investments based on key currency bias. Using the international portfolio rebalancing model and the matched firm data of 18,704 and 8,267 cases of SWFs’ cross-border investment during 1999–2017, evidence strongly supports the key currency bias hypothesis for the determination of SWFs’ cross-border investments. In sharp contrast to the relationship between the exchange rate and international portfolio flows, the economic rationale for the currency bias is to provide hedging against the exchange risk of SWFs’ cross- border investments by matching the denominated key currency of the SWF sources with the other denominated currency of foreign target assets. This study complements the existing finance literature by providing portfolio implications for analyzing cross-border investments by commercial institution investors and portfolio rebalancing of financial assets between different currency zones.

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