Is Foreign Exchange Risk Priced in the Japanese Stock Market?

Posted: 14 Aug 1998

See all articles by Takato Hiraki

Takato Hiraki

Tokyo University of Science - School of Management

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

Nobuya Takezawa

International University of Japan - Graduate School of International Management

Abstract

The exchange rate is an important variable that affects international competitiveness and performance of Japanese firms. We use an unconditional and a conditional multi-factor asset pricing model to examine whether exchange risk is recognized and priced in the Japanese stock market. The results indicate that the exchange risk is generally priced in Japan. More specifically, we provide evidence, in the unconditional model, that the exchange risk is priced in both weak and strong yen periods, when the bilateral yen/U.S. dollar exchange rate measure is used. The results are more mixed when the trade-weighted exchange rate is used. For the conditional model, the exchange risk is priced regardless of the exchange rate measure used. The combined evidence from the two models suggests an interesting observation about the role of the secular exchange rate trend in shaping the perception of exchange risk in the Japanese capital markets.

JEL Classification: F31, G12

Suggested Citation

Hiraki, Takato and Choi, Jongmoo Jay and Takezawa, Nobuya, Is Foreign Exchange Risk Priced in the Japanese Stock Market?. Journal of Financial and Quantitative Analysis, September 1998. Available at SSRN: https://ssrn.com/abstract=103748

Takato Hiraki (Contact Author)

Tokyo University of Science - School of Management ( email )

6-3-1 NiiJuku Katsushika-Ku
Tokyo, 125-8585
Japan
+81-480-21-7611 (Phone)
+81-480-21-7654 (Fax)

Jongmoo Jay Choi

Temple University ( email )

Fox School of Business
Temple University
Philadelphia, PA 19122
United States
215-204-5084 (Phone)
215-204-1697 (Fax)

HOME PAGE: http://astro.temple.edu/~jjchoi

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Temple University - International Business ( email )

Philadelphia, PA 19122
United States

Nobuya Takezawa

International University of Japan - Graduate School of International Management ( email )

777 Anaji-Shinden
Yamato-machi, Niigata-ken
949-7277 Japan
81 257 79 1509 (Phone)
81 257 79 4443 (Fax)

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