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Foreign Exchange Volatility Is Priced in Equities

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  • Hui Guo
  • Christopher J. Neely
  • Jason Higbee

Abstract

"This paper finds that standard asset pricing models fail to explain the significantly negative delta hedging errors that occur as a result of the purchase of options on foreign exchange futures. Foreign exchange volatility does influence stock returns, however. The volatility of the JPY/USD exchange rate predicts the time series of stock returns and is priced in the cross-section of stock returns." Copyright (c) 2008 Financial Management Association International..

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Bibliographic Info

Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 37 (2008)
Issue (Month): 4 (December)
Pages: 769-790

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Handle: RePEc:bla:finmgt:v:37:y:2008:i:4:p:769-790

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References

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Cited by:
  1. Torben G. Andersen & Luca Benzoni, 2008. "Realized volatility," Working Paper Series WP-08-14, Federal Reserve Bank of Chicago.
  2. Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market," Economic Modelling, Elsevier, vol. 37(C), pages 451-463.
  3. Peter Christoffersen & Stefano Mazzotta, 2004. "The Informational Content of Over-the-Counter Currency Options," CIRANO Working Papers 2004s-16, CIRANO.
  4. Aidan Corcoran, 2010. "Global Funding Liquidity, Equity Returns and Crash Risk: Implications for Monetary Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp318, IIIS, revised Feb 2010.

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