TY - JOUR
T1 - Understanding the pricing of currency risk in global equity markets
AU - Karolyi, G. Andrew
AU - Wu, Ying
N1 - Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2022/3
Y1 - 2022/3
N2 - This paper explores potential economic mechanisms through which fluctuations in exchange rates are priced in international stock returns. Our investigation focuses 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 of monthly returns for over 47,000 stocks from 46 countries and over four decades. We find that currency risk is more likely to be priced among firms producing tradeable goods, and especially during periods of heightened exchange rate volatility. This finding is robust with respect to the evaluating criteria on firm internationalization, the benchmark factor models chosen, and the sub-periods examined.
AB - This paper explores potential economic mechanisms through which fluctuations in exchange rates are priced in international stock returns. Our investigation focuses 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 of monthly returns for over 47,000 stocks from 46 countries and over four decades. We find that currency risk is more likely to be priced among firms producing tradeable goods, and especially during periods of heightened exchange rate volatility. This finding is robust with respect to the evaluating criteria on firm internationalization, the benchmark factor models chosen, and the sub-periods examined.
KW - Currency risk
KW - Exchange rates
KW - International asset pricing
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U2 - 10.1016/j.mulfin.2021.100727
DO - 10.1016/j.mulfin.2021.100727
M3 - Article
AN - SCOPUS:85121330604
SN - 1042-444X
VL - 63
JO - Journal of Multinational Financial Management
JF - Journal of Multinational Financial Management
M1 - 100727
ER -