why Japen? at the beginning I thought it got to be Japen for hedged one, but I thought there must be some tricks there, so what’s the strategy for Japen? borrow at Jap riskfree rate and invest in Jap 5-year? But if borrow at 2.5% in Singapore and invest in UK riskfree (6.xx%), then it’s 4.xx% excess return, what did I miss?
Still got some fear of unknown 
1. CTA? 2. Dietz 3. Breadth explanation correct, but doubling - not double IR 4. IR for enchanced index incorrect cause it should be higher than passive and HIGHER not lower than active
my brain was totally fvcked up at that question, i tried to find the breakeven by dividing the yield by the duration of each country to find how fast your return goes to negative or zero for a 100bps change, i guess it was UK the highest. Some people used just duration for that, i dunno which is right
actuaryalfred Wrote: ------------------------------------------------------- > why Japen? at the beginning I thought it got to > be Japen for hedged one, but I thought there must > be some tricks there, so what’s the strategy for > Japen? borrow at Jap riskfree rate and invest in > Jap 5-year? But if borrow at 2.5% in Singapore > and invest in UK riskfree (6.xx%), then it’s 4.xx% > excess return, what did I miss? When comparing bonds based on hedged return you look at the excess return in local currency ( Rbond - Rf_bondcurr). When looking at unhedged you look at domestic return = Return on bond + Currency return
CR*P, I forgot to subtract local RFR
itstoohot Wrote: ------------------------------------------------------- > my brain was totally fvcked up at that question, > > i tried to find the breakeven by dividing the > yield by the duration of each country to find how > fast your return goes to negative or zero for a > 100bps change, i guess it was UK the highest. Some > people used just duration for that, i dunno which > is right The answer was UK. You had to use (Bond_Yield - Singapore_Bond_yield)/Singapore_B_duration
me too 2.86%
mo34 Wrote: ------------------------------------------------------- > actuaryalfred Wrote: > -------------------------------------------------- > ----- > > why Japen? at the beginning I thought it got > to > > be Japen for hedged one, but I thought there > must > > be some tricks there, so what’s the strategy > for > > Japen? borrow at Jap riskfree rate and invest > in > > Jap 5-year? But if borrow at 2.5% in Singapore > > and invest in UK riskfree (6.xx%), then it’s > 4.xx% > > excess return, what did I miss? > > > When comparing bonds based on hedged return you > look at the excess return in local currency ( > Rbond - Rf_bondcurr). > > When looking at unhedged you look at domestic > return = Return on bond + Currency return is it the formal definition of excess return? just given the table, borrow from domestic (Singapore) riskfree and earn in UK riskfree gives the most return, as I thought the question didn’t mention how you do it just ask you which country could give you highest excess return, I don’t see any problem with the UK strategy …
guys wouldnt gross of fees without adjusting for any fees. that means any increase or decrease would not affect the gross of fee calculation… only net of fees calculation. hence i put equal to gross and lower for net
trading expenses are deducted both for gross or net
actuaryalfred Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > actuaryalfred Wrote: > > > -------------------------------------------------- > > > ----- > > > why Japen? at the beginning I thought it got > > to > > > be Japen for hedged one, but I thought there > > must > > > be some tricks there, so what’s the strategy > > for > > > Japen? borrow at Jap riskfree rate and > invest > > in > > > Jap 5-year? But if borrow at 2.5% in > Singapore > > > and invest in UK riskfree (6.xx%), then it’s > > 4.xx% > > > excess return, what did I miss? > > > > > > When comparing bonds based on hedged return you > > look at the excess return in local currency ( > > Rbond - Rf_bondcurr). > > > > When looking at unhedged you look at domestic > > return = Return on bond + Currency return > > is it the formal definition of excess return? > just given the table, borrow from domestic > (Singapore) riskfree and earn in UK riskfree gives > the most return, as I thought the question didn’t > mention how you do it just ask you which country > could give you highest excess return, I don’t see > any problem with the UK strategy … It’s very simple, check this out: R_domestic_hedged = R_local + R_Futures R_futures = i_domestic - i_local So we get: R_domestic_hedged = i_domestic + (R_local - i_local) So when you compare bonds hedged, you pick the one with the highest: (r_local - i_local) where i is for Risk free rate
actuaryalfred Wrote: ------------------------------------------------------- > trading expenses are deducted both for gross or > net no doubt.
crap… screwed on this one
where is the borrowing cost?
Not sure what you mean by borrowing costs ? The risk free rate in local currency is i_local.
I will visit japan twice, too. Don´t remember where I will go in my third trip. The reason is that, first of all, if I compare hotel rates in japan and in my home country, I will get japanese hotel forward premium or discount, which, added to the japanese hotel rate, gives me the hedged rate for the hotel… I am pretty sure japanese hotels after those calculations are much better than other countries. If I don´t hege my hotel risk, I will pay whatever rate each hotel demands, plus the expected change in the currency… and i think japanese are better here, too
mo34, could you refer me to a page in the book? I’m still lost just let me what is wrong for the following: borrow at 2.5% local change to UK get the 5-year bond yield or riskfree rate at (6.xx%) as it’s hedged, 1 year later the rate of change of currency won’t affect me too much I can earn 6.xx% - 2.5%, totally lost
On the econ section…anyone remember answer to last question…implied Ke - g? I put Divident Yield
The books are long gone in a bix in my garage The only thing you need to add to your analysis is that the futures will appreciate/depreciate by the difference in risk free rates between the two countries. Try to read my analysis above.
tenbagger Wrote: ------------------------------------------------------- > On the econ section…anyone remember answer to > last question…implied Ke - g? I put Divident > Yield yes, they specifically mentioned dividend discount model.