02162nab a22003137a 4500 OSt 20250331034654.0 250221t2025 |||uu||oo|||| 00| 0 eng d 0378-4266 JMCFI - Learning Resource Center Ulrych, Urban 13322 Global currency hedging with ambiguity / Urban Ulrych and Nikola Vasiljević. Amsterdam : Elsevier B.V., 2025. Includes bibliographical references. Abstract : This paper examines the issue of optimal currency allocation for an international investor who is both risk- and ambiguity-averse. Utilizing a robust mean–variance model that incorporates smooth ambiguity preferences, we derive a closed-form solution for the optimal currency exposure. Within this theoretical framework, the demand for optimal currency hedging is formulated as the solution to a generalized ridge regression. Our findings indicate that the investor’s aversion to model uncertainty increases the demand for hedging. The empirical analysis illustrates that ambiguity introduces greater estimation bias and narrows the confidence interval of the optimal currency exposure estimator. An out-of-sample backtest further demonstrates that incorporating ambiguity into the model improves the stability of optimal currency allocation over time and significantly reduces portfolio volatility after accounting for transaction costs. Investors Currency allocation. 13323 International investors Currency allocation. 13324 Currency hedging. 13325 Ridge regression. 13326 International asset allocation. 13327 Optimal currency exposure. 13328 Research. 146 Quantitative research. 1581 Journal articles (Open access). 11480 Vasiljević, Nikola 13329 , volume 172, 1-27 pages, (March 2025). Journal of Banking & Finance https://www.sciencedirect.com/science/article/pii/S0378426624002802?ref=pdf_download&fr=RR-2&rr=91443099981d043d OAER 0 lcc 4798 4798 0 0 0 0 DL DL 2025-02-21 0 2025-02-21 https://www.sciencedirect.com/science/article/pii/S0378426624002802?ref=pdf_download&fr=RR-2&rr=91443099981d043d 2025-02-21 OAER