Currency risk and market integration

52 Pages Posted: 19 Feb 2014 Last revised: 6 Apr 2018

See all articles by Ines Chaieb

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Date Written: February 12, 2014

Abstract

Market integration and currency risk are two main factors that distinguish international investment and financing decisions. Hence, we investigate the impact of currency factor on the dynamics of market integration. We compare integration indices estimated from conditional international asset pricing models with and without real exchange risk. We also examine the sensitivity of the multifactor asset pricing model to omitted currency factors. In general, although the currency risk is significantly priced, it does not affect the level and the dynamics of the integration measure except under crises conditions.

Keywords: Real exchange rate risk premium, market integration, international asset pricing, emerging markets.

JEL Classification: G15, F30, G30

Suggested Citation

Chaieb, Ines and Errunza, Vihang R., Currency risk and market integration (February 12, 2014). Swiss Finance Institute Research Paper No. 14-10, Available at SSRN: https://ssrn.com/abstract=2397727 or http://dx.doi.org/10.2139/ssrn.2397727

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

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