An Empirical Investigation of International Asset Allocation from Chinese Perspective

In this paper, we study the risk management in the international asset allocation problem. We employ the forward contract to hedge the exchange rate risk in the international investment and compare the consequence of different forward contracts with various terms from the perspective of Chinese investors. By using seven countries´ stock and bond data, we carry out the domestic market is more preferred during the period of the latest crisis for relatively stable RMB. We also find that portfolios with bonds are more robust in both situations. Moreover, Hedging like forwards can eliminate exchange rate risk, while selecting an appropriate term is very important.