Exchange rate risk in the U.S. stock market: Working paper series--11-07

Du, Ding and Hu, Ou (2011) Exchange rate risk in the U.S. stock market: Working paper series--11-07. Working Paper. NAU W.A. Franke College of Business.

Preview

Text Du_D_etal_2011_FrankeWPS_11-07.pdf Download (374kB) | Preview

Abstract

Kolari, Moorman, and Sorescu (2008) show that exchange rate risk measured by contemporaneous exchange rate changes is priced in the US stock market. However, by construction, their exchange rate risk factor has a strong correlation with the size factor, and their exchange rate sensitivity portfolios have a strong factor structure. To test whether their results are spurious, we carry out two sets of tests. The first set is motivated by Lewellen, Nagel and Shanken (2010), while the second set is motivated by the voluminous literature which suggests that stock returns are heavy-tailed (e.g. Rachev and Mittnik, 2000). Unlike Kolari, Moorman, and Sorescu (2008), we find that exchange rate risk measured by contemporaneous exchange rate changes is not priced in the US stock market. We use industry portfolios which do not have a strong factor structure as the testing assets and use more robust methods to estimate firm-specific exchange rate sensitivity. Our findings therefore suggest that researchers need to take a new perspective on exchange rate risk.

Item Type:	Monograph (Working Paper)
Publisher’s Statement:	Copyright, where appropriate, is held by the author.
ID number or DOI:	11-07
Keywords:	Working paper, exchange rate risk, contemporaneous exchange rate changes, exchange rate risk factor
Subjects:	H Social Sciences > HG Finance
NAU Depositing Author Academic Status:	Faculty/Staff
Department/Unit:	The W.A. Franke College of Business
Date Deposited:	17 Oct 2015 09:33
URI:	http://openknowledge.nau.edu/id/eprint/1480

Actions (login required)

IR Staff Record View

Downloads