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Using forward contracts to hedge foreign investment in US real estate

Brigitte Ziobrowski (Assistant Professor of Finance at the School of Business Administration, Augusta College, Augusta, Georgia, USA.)
Alan Ziobrowski (Alan J. Ziobrowski is Assistant Professor of Finance at the School of Business Administration, Lander University, Greenwood, South Carolina, USA.)

Journal of Property Valuation and Investment

ISSN: 0960-2712

Article publication date: 1 March 1995

Abstract

Recent studies on foreign investment in US real estate provide evidence that fluctuating exchange rates are likely to reduce the potential gains from international diversification by making these investments more risky. However, other research has suggested that forward currency contracts may provide an effective mechanism for offsetting exchange rate volatility and thus restore the diversification benefits. Examines the use of forward contracts as a means of hedging the currency risk associated with foreign investment in US real estate. Indicates that, although continuous hedging of US real estate with forward contracts allows foreign investors to eliminate most of the risk induced by currency instability, the improvements are insufficient to produce diversification gains for all foreign investors in the context of meanvariance portfolio performance.

Keywords

Citation

Ziobrowski, B. and Ziobrowski, A. (1995), "Using forward contracts to hedge foreign investment in US real estate", Journal of Property Valuation and Investment, Vol. 13 No. 1, pp. 22-43. https://doi.org/10.1108/14635789510077278

Publisher

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MCB UP Ltd

Copyright © 1995, MCB UP Limited