Large fundamental imbalances persist in the global economy, with
potential exchange rate implications. This paper assesses whether
exchange rate risk is priced across G-7 stock markets. Given the
multitude of hedging instruments available, theory suggests that
stock market investors should not be compensated for currency risk.
However, data covering 33 industry portfolios across seven major
stock markets suggest that not only is exchange rate risk priced in
many markets, but that it is time-varying and sensitive to
currency-specific shocks. With stock market investors typically
exhibiting "home bias," this suggests that investors are using
equity asset proxies to hedge the exchange rate risks to
|Country of origin:
Shaun K K Roache
||Electronic book text
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