How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?
54 Pages Posted: 1 Jan 2016 Last revised: 24 Aug 2018
Date Written: September 5, 2016
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 The Swiss National Bank surprisingly repealed a minimum exchange rate of 1.2 Swiss francs per Euro on January 15, 2015, triggering a one day appreciation of 15 percent.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.
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