Gold options,an attractive investment instrument for the non-U.S. investor — the case of the Belgian and Dutch investor

Summary Gold has always been an investment instrument whose popularity is closely linked to economic and political instability. Since gold transactions occur in U.S. dollars any investor with a non-U.S. dollar base currency will therefore assume exchange risk exposure. Empirical evidence is given that the gold price has historically varied inversely with the strength of the U.S. dollar. The investor whose base currency is not the dollar, i.e. the Belgian franc or Dutch guilder, incurs less risk when investing in gold than his dollar counterpart.     

The US stock market and the international value of the US dollar

We investigate the spillover effect of the US equity market on the value of the dollar and therefore on the return and volatility of US equity investments for the international investor. The data are daily observations of the S & P 500 and the US dollar in terms of seven foreign currencies covering the period 1971–2002. Using Geweke measures of feedback, we find a high percentage of contemporaneous association between daily movements in the S & P 500 index and changes in the value of the dollar. A consistently positive relationship between the S & P 500 and the dollar is found for the period 1992–2002, creating a compounding effect for the foreign investor in US equities. However, investment by foreigners in US equities did not result in consistently higher returns but in higher volatility compared to their US counterparts for the period 1971–2002.     

PRACTICES OF TREASURY MANAGEMENT IN A SMALL OPEN TRADING ECONOMY: THE BELGIAN CASE

There is little systematic information available on the current practices in the area of treasury management among companies outside the US. The purpose of this study is to investigate management practices in the areas of treasury management for companies located in a small open trading economy: Belgium. This article analyses and compares corporate responses in three important areas of treasury management, i. e. managing banking relations, domestic cash management, and foreign exchange management. The results presented in this article indicate that corporate practice in these areas could be much more sophisticated.     

Asian Economic Integration and Stock Market Comovement

Using daily returns from 1988 to 1998, we investigate to what degree twelve equity markets in Asia are integrated with Japan's equity market and examine the factors that affect the level of economic integration. We find that the equity markets of Australia, China, Hong Kong, Malaysia, New Zealand, and Singapore are highly integrated with the stock market in Japan. There is also evidence that these Asian markets become more integrated over time, especially since 1994. A higher import share as well as a greater differential in inflation rates, real interest rates, and gross domestic product growth rates have negative effects on stock market comovements between country pairs. Conversely, increased export share by Asian economies to Japan and greater foreign direct investment from Japan to other Asian economies contribute to greater comovement.     

The Equity Market Risk Premium and the Valuation of Overseas Investments

There is little agreement among academics or practitioners about how to measure the size of the equity market risk premium, particularly when it relates to investments in emerging markets. Using monthly equity returns for 22 developed and 24 emerging markets covering the period 1976–2006, the authors find that developed capital markets have experienced significant increases in their degree of integration with the U.S. and world market indexes, while emerging markets remain at least partly segmented from those of the U.S. and the world. For countries that are reasonably well integrated into global capital markets, the authors suggest using the U.S.—based equity market risk premium. But when valuing investments in emerging markets, they recommend use of the Capital Asset Pricing Model adjusted for political risk and a measure of co‐movement between the foreign and U.S. stock markets. The authors also remind readers that the equity market risk premium is supposed to be a forward‐looking measure, and that the common practice of inferring the future from the past can be misleading, particularly in the case of rapidly developing emerging markets.     

On the significance of the incremental returns from hedging international portfolios

This paper investigates whether hedging the currency risk associated with international portfolios diversified into established and emerging markets leads to significant incremental returns. From the empirical results, for the period August 1989 to December 1997, the ineffectiveness of hedging for generating superior returns could be explained by the low correlations among the observed markets and the presence of negative index/currency correlations in many assets. In the particular case of emerging markets, the predominance of positive index/currency correlations suggests that the currency risk could compound the risk posed by these markets beyond the power of a hedging strategy.