A Study on the Currency Structure of Foreign Exchange Reserve Based on Risk Choice and Investment Return

The risk preference of a country's foreign exchange reserve investment will be affected by the assets scale of its foreign exchange reserve.Learning from the three utility function in J.H.Makin(1971),the paper has established a theoretical model of currency structure of foreign exchange reserve investment which gives full consideration to safety,liquidity and profitability.Supposing foreign exchange reserve investment is only composed of dollar and euro assets,the paper has made an empirical study on the quarterly data of 10 year US treasury bonds and the euro zone bonds from Jan.,2000 to Sep.,2014.By using cointegration analysis and Granger test,we conclude that the proportion of a currency in foreign exchange reserve investment has a significant positive correlation to the investment return and the three order moment of the currency;and generally speaking,the official foreign exchange reserve investment is risk averse.