Is Exchange Risk Priced Beyond Intertemporal Risk?

33 Pages Posted: 13 Oct 2005

See all articles by Ines Chaieb

Ines Chaieb

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

Stefano Mazzotta

Kennesaw State University - Michael J. Coles College of Business

Oumar Sy

Dalhousie University

Date Written: March 2005

Abstract

Recent conditional tests show that exchange risk is priced in integrated international markets. However, these results are typically obtained assuming that intertemporal risk does not matter. We test an intertemporal international asset-pricing model where the investment opportunity set is dynamic. Using a conditional orthogonalization approach, we investigate whether the exchange risk is priced once the market and intertemporal risks are fully taken into account. We find that, in addition to the market and intertemporal risks, the exchange risk is an important determinant of risk premium. We also find that the intertemporal risk, which is often overlooked in the literature, is priced.

Keywords: International asset pricing models, exchange risk, intertemporal risk

JEL Classification: G15

Suggested Citation

Chaieb, Ines and Mazzotta, Stefano and Sy, Oumar, Is Exchange Risk Priced Beyond Intertemporal Risk? (March 2005). Available at SSRN: https://ssrn.com/abstract=811589 or http://dx.doi.org/10.2139/ssrn.811589

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Stefano Mazzotta

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Kennesaw, GA 30144
United States
(470) 578-6341 (Phone)
(470) 578-9022 (Fax)

HOME PAGE: http://www.mazzotta.info

Oumar Sy

Dalhousie University ( email )

6225 University Avenue
Halifax, Nova Scotia B3H 4H7
Canada
902-494-3849 (Phone)
902-494-1107 (Fax)

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