Currency and Stock Returns: An Example of Market Inattention

23 Pages Posted: 8 Mar 2019 Last revised: 27 Feb 2021

See all articles by Hector Chan

Hector Chan

AXA IM Chorus; University Paris Dauphine

Augustin Landier


Yonglei Wang

AXA Investment Managers

Date Written: October 18, 2018


Currency shocks affect future corporate earnings: companies exporting in countries with an appreciating currency see their earnings increase. Using company-level data on geographic sales, we document that analysts fail to fully integrate currency shocks into their firm-level forecasts: their forecast errors can therefore be predicted by past currency movements. We also show that stock prices do not respond immediately to currency shocks: prices take about two weeks to integrate them. This is true for small to medium size shocks but not for larger shocks, in line with a bounded rationality interpretation. Finally, we find some evidence that arbitrage capital exploiting this anomaly has increased in recent years.

Keywords: Behavioral finance; Under-reaction; Informational efficiency; Inattention

JEL Classification: G40

Suggested Citation

Chan, Hector and Chan, Hector and Landier, Augustin and Wang, Yonglei, Currency and Stock Returns: An Example of Market Inattention (October 18, 2018). Available at SSRN: or

Hector Chan

AXA IM Chorus

36/F One Taikoo Place
979 King's Road
Quarry Bay, Paris La Défense Cedex
Hong Kong

University Paris Dauphine ( email )


Yonglei Wang

AXA Investment Managers

7 Newgate Street
London, EC1A 7NX, Paris La Défense Cedex 92932
United Kingdom

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