Does exchange rate risk matter for asset pricing? Working paper series--10-01

Du, Ding (2010) Does exchange rate risk matter for asset pricing? Working paper series--10-01. Working Paper. NAU W.A. Franke College of Business.

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Abstract

Following Adler and Dumas (1983), it is a common practice in the exchange rate literature to use the contemporaneous exchange rate change as the relevant risk factor. However, if exchange rate fluctuations affect cash flows of firms as Stulz (1984), among others, suggest and future not current cash flows matter for asset pricing, we should focus on future not contemporaneous exchange rate changes. Furthermore, if as Starks and Wei (2005) suggest exchange rate fluctuations can push a firm into financial distress, the exchange rate risk is a distress factor and should behave like the value factor in the three-factor model and carry a positive risk premium. We test these conjectures in this paper and find supporting evidence in the post Plaza-Accord period.

Item Type:	Monograph (Working Paper)
Publisher’s Statement:	Copyright, where appropriate, is held by the author.
ID number or DOI:	10-01
Keywords:	Working paper, Exchange rate risk, Exchange exposure, Tracking portfolio approach, Two-pass regression approach
Subjects:	H Social Sciences > HB Economic Theory 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 20:51
URI:	http://openknowledge.nau.edu/id/eprint/1502

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