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Trade competitiveness and the aggregate returns in global stock markets

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  • Chiah, Mardy
  • Long, Huaigang
  • Zaremba, Adam
  • Umar, Zaghum

Abstract

Using the change in the real effective exchange rate (REER) to reflect trade competitiveness, we examine its role in the cross-section of global equity returns. The changes in REER negatively affect stock market returns. The REER effect is robust after controlling for known risk factors and market characteristics. Furthermore, it remains pervasive across different periods and subsamples. Our findings support the conventional wisdom that appreciating currency harms trade values, consequently dampening a firm's stock market performance.

Suggested Citation

  • Chiah, Mardy & Long, Huaigang & Zaremba, Adam & Umar, Zaghum, 2023. "Trade competitiveness and the aggregate returns in global stock markets," Journal of Economic Dynamics and Control, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:dyncon:v:148:y:2023:i:c:s0165188923000246
    DOI: 10.1016/j.jedc.2023.104618
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    More about this item

    Keywords

    Trade competitiveness; Real effective exchange rate; Country equity risk premium; Country stock returns; International stock markets; Asset pricing; Return predictability; The cross-section of stock returns;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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