Exchange Rate and Foreign Inflation Risk Premiums in Global Equity Returns

55 Pages Posted: 22 Feb 2000

See all articles by Maria Vassalou

Maria Vassalou

Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1999

Abstract

We test for the pricing of exchange rate and foreign inflation risk in equities. Our tests are motivated by the empirical implications of the models of Solnik (1974b) as revised by Sercu (1980), Grauer, Litzenberger, and Stehle (1976), and Adler and Dumas (1983). Both exchange rate and foreign inflation risk factors can explain part of the within-country cross-sectional variation in returns. Our results have important implications for hedging exchange rate risk. They also demonstrate that home bias, at least in US equity portfolios, cannot be the result of US investors' efforts to hedge their domestic inflation.

JEL Classification: G11, G12, G15

Suggested Citation

Vassalou, Maria, Exchange Rate and Foreign Inflation Risk Premiums in Global Equity Returns (July 1999). Available at SSRN: https://ssrn.com/abstract=199733 or http://dx.doi.org/10.2139/ssrn.199733

Maria Vassalou (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
632
Abstract Views
3,516
rank
40,331
PlumX Metrics