Domestic Elasticity of Default-Free Foreign Bonds

Iraj J Fooladi, Gady Jacoby, Gordon S Roberts, Zvi Wiener

Research output: Contribution to journalArticlepeer-review


Modeling FX risk adjusted duration of foreign government bonds taking the viewpoint of a domestic investor interested in converting cash flows into domestic currency, we show that foreign bond portfolio managers who fail to adjust for FX risk in calculating duration of foreign sovereign debt observe duration with error and consequently engage in inefficient active rate-anticipation and immunization strategies. Using daily bond returns for sovereign issuers in five currencies observed between January 2000 and June 2005, we estimate FX-adjusted elasticity for different maturities. Our empirical findings indicate that FX-adjusted elasticity is significantly different from Macaulay unadjusted duration for all countries and all maturities.
Original languageEnglish
Pages (from-to)174-182
Number of pages9
JournalJournal of Applied Finance
Issue number2
StatePublished - 2006

Bibliographical note

Copyright - Copyright Financial Management Association Fall 2006


  • Banking And Finance
  • Business And Economics
  • Studies
  • Foreign exchange rate risk
  • Bond portfolios
  • Sovereign debt
  • Elasticity
  • Government bonds
  • Foreign investment
  • Economic theory
  • Foreign exchange administration
  • Experiment/theoretical treatment
  • models


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