Pricing Dollar Strength Risk

67 Pages Posted: 27 Sep 2016 Last revised: 15 Aug 2017

Date Written: August 5, 2017

Abstract

The relative strength of the U.S. dollar does not explain the cross-section of expected returns. We find, however, that signed sensitivity of individual firms’ returns to moves in dollar strength matters for asset pricing. A portfolio that goes long high-dollar-sensitivity stocks and short low-dollar-sensitivity stocks earns a multi-factor alpha of 3%-7% per year. Sorting on dollar sensitivity captures firm fundamentals - in particular fraction of revenue from abroad. Dollar sensitivity has implications for profitability and fundamental momentum, as well as the relationship between momentum strategies across countries.

Keywords: factor models, global risk, momentum, exposure

JEL Classification: G12, G15

Suggested Citation

Bianconi, Marcelo and Sammon, Marco, Pricing Dollar Strength Risk (August 5, 2017). Available at SSRN: https://ssrn.com/abstract=2841959 or http://dx.doi.org/10.2139/ssrn.2841959

Marcelo Bianconi

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2677 (Phone)

HOME PAGE: http://www.tufts.edu/~mbiancon

Marco Sammon (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://marcosammon.com/

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