How Do Investors and Firms React to a Large Unexpected Currency Appreciation Shock?
53 Pages Posted: 1 Jan 2016 Last revised: 13 Jan 2020
Date Written: January 8, 2020
We examine the impact of a large, sudden, and unexpected home currency appreciation shock on the valuation and behavior of corporations in a developed economy. The Swiss National Bank surprisingly repealed a minimum exchange rate in 2015, triggering a one day appreciation of 17 percent. Valuations of Swiss firms, in particular exporters, fell substantially on the event day. The appreciation also caused a strong decrease in sales among currency exposed firms. Firms stabilized sales by making price concessions which compressed margins and return on assets in the following years. They also reduced investment by an economically large 8.3 percentage points.
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