How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?

54 Pages Posted: 1 Jan 2016 Last revised: 24 Aug 2018

See all articles by Matthias Efing

Matthias Efing

HEC Paris - Finance Department; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Christoph Herpfer

Emory University - Goizueta Business School

Philipp Krueger

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

Date Written: September 5, 2016

Abstract

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 The Swiss National Bank surprisingly repealed a minimum exchange rate of 1.2 Swiss francs per Euro on January 15, 2015, triggering a one day appreciation of 15 percent. The market value of Swiss firms, in particular exporters, fell substantially on the event day. The appreciation also caused a substantial decrease in sales among currency exposed firms in the following 6 months. Firms stabilized sales by making price concessions which compressed margins and return on assets for the years to follow. They also reduced investment by an economically large 8.3 percentage points.

Suggested Citation

Efing, Matthias and Fahlenbrach, Rüdiger and Herpfer, Christoph and Krueger, Philipp, How Do Investors and Firms React to an Unexpected Currency Appreciation Shock? (September 5, 2016). Swiss Finance Institute Research Paper No. 15-65. Available at SSRN: https://ssrn.com/abstract=2709637 or http://dx.doi.org/10.2139/ssrn.2709637

Matthias Efing (Contact Author)

HEC Paris - Finance Department ( email )

France
(++33)695646755 (Phone)

HOME PAGE: http://matthiasefing.com/

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)

HOME PAGE: http://sfi.epfl.ch/fahlenbrach.html

Swiss Finance Institute

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

Christoph Herpfer

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Philipp Krueger

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

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

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