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

53 Pages Posted: 1 Jan 2016 Last revised: 13 Jan 2020

See all articles by Matthias Efing

Matthias Efing

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

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Christoph Herpfer

Emory University - Goizueta Business School

Philipp Krueger

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

Date Written: January 8, 2020

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 The Swiss National Bank surprisingly repealed a minimum exchange rate in 2015, triggering a one day appreciation of 17 percent.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.

Suggested Citation

Efing, Matthias and Fahlenbrach, Rüdiger and Herpfer, Christoph and Krueger, Philipp, How Do Investors and Firms React to a Large Unexpected Currency Appreciation Shock? (January 8, 2020). 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/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

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