Understanding the pricing of currency risk in global equity markets

G. Andrew Karolyi, Ying Wu

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

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.

Original languageEnglish
Article number100727
JournalJournal of Multinational Financial Management
Volume63
DOIs
StatePublished - Mar 2022

Keywords

  • Currency risk
  • Exchange rates
  • International asset pricing

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