About OpenKnowledge@NAU | For NAU Authors

Foreign exchange volatility and stock returns: Working paper series--12-05

Du, Ding and Hu, Ou (2012) Foreign exchange volatility and stock returns: Working paper series--12-05. Working Paper. NAU W.A. Franke College of Business.

[img]
Preview
Text
Du_D_etal_2012_FrankeWPS_12-05(1)(1).pdf

Download (307kB) | Preview

Abstract

This paper explores whether foreign exchange volatility is a priced factor in the US stock market. Our investigation is motivated by a number of empirical as well as theoretical considerations. Empirically, Menkhoff, Sarno, Schmeling, and Schrimpf (2011) find that foreign exchange volatility is a pervasive factor across a variety of test assets. Theoretically, Shapiro (1974), Dumas (1978), and Levi (1990) imply that foreign exchange volatility can influence firms' cash flow volatility and, therefore, the discount rate. In terms of empirical implementation, we employ the cross-sectional regression methodology of Fama and MacBeth (1973) as well as the time-series regression approach of Fama and French (1996). For robustness, we also use the mimicking portfolio approach of Fama and French (1993). We find that foreign exchange volatility has no power in explaining either the time-series or the cross-section of stock returns, which calls for more research on foreign exchange risk. Bartov, Bodnar, and Kaul (1996) and Adrian and Rosenberg (2008) suggest an alternative and maybe promising direction.

Item Type: Monograph (Working Paper)
Publisher’s Statement: Copyright, where appropriate, is held by the author.
ID number or DOI: 12-05
Keywords: Working paper, Foreign exchange volatility, Exchange rate risk factor, Mimicking portfolios
Subjects: H Social Sciences > HG Finance
NAU Depositing Author Academic Status: Faculty/Staff
Department/Unit: The W.A. Franke College of Business
Date Deposited: 15 Oct 2015 21:41
URI: http://openknowledge.nau.edu/id/eprint/1470

Actions (login required)

IR Staff Record View IR Staff Record View

Downloads

Downloads per month over past year