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Another Look at Currency Risk in International Stock Returns

58 Pages Posted: 23 Oct 2017  

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

Ying Wu

Stevens Institute of Technology - School of Business

Date Written: October 21, 2017

Abstract

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

Karolyi, George Andrew and Wu, Ying, Another Look at Currency Risk in International Stock Returns (October 21, 2017). Available at SSRN: https://ssrn.com/abstract=3056845

George Karolyi

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Ying Wu (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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