Exchange Rate and Foreign Inflation Risk Premiums in Global Equity Returns
Journal of International Money and Finance
Posted: 22 Feb 2000
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.
Note: This is a description of the paper, and not the actual abstract.
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation