Is currency risk priced in global equity markets?

George Andrew Karolyi, Ying Wu

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We offer new evidence on how currency risk is priced in the cross-section of global stock returns. The focus is on two currency risk factors'a dollar-risk factor and a carry-trade-risk factor'and their explanatory power for a variety of test assets comprised monthly returns for over 37,000 stocks from forty-six countries and over four decades. We obtain reliable positive evidence of the pricing of carry-trade factor risk and the implied premia are statistically significant and economically as expected. The pricing of the dollar-risk factor is less reliable. Our inferences depend critically on the inclusion of emerging markets.

Original languageEnglish
Pages (from-to)863-902
Number of pages40
JournalReview of Finance
Volume25
Issue number3
DOIs
StatePublished - 1 May 2021

Keywords

  • Currency risk
  • Exchange rates
  • International asset pricing

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