Another Look at Currency Risk in International Stock Returns
58 Pages Posted: 23 Oct 2017
Date Written: October 21, 2017
This paper offers new evidence on how currency risk is priced in the cross-section of international stock returns. Our experiment examines this long-standing question for a wide variety of test asset portfolios comprised of monthly returns for over 37,000 stocks from 46 countries over a two-decade period. We obtain some positive evidence of the pricing of currency risk, but the implied premia on the currency risk factors are economically small. The inferences are fragile - they depend critically on the benchmark factor models used, the sub-period evaluated, and even the composition of the test asset portfolios assessed. Overall, we judge that currency risk factors do not help to capture much of the time-series or cross-sectional variation in stock returns for global and regional portfolios.
Keywords: International Asset Pricing, Currency Risk, Exchange Rates
JEL Classification: F30, F31, G11, G15
Suggested Citation: Suggested Citation