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Pricing of the currency risk in the Canadian equity market

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  • Al-Shboul, Mohammad
  • Anwar, Sajid

Abstract

Based on a three-factor international capital asset pricing model, we examine whether the world market, the local market and the currency risks are priced in the Canadian equity market. The analysis presented in this paper is based on data collected from 2003 to 2010. As the dataset also includes the period of global financial crisis, we examine the issue of risk pricing in the full sample as well as in before and after global financial crisis periods. Unlike most existing studies, the empirical results presented in this paper are based on (i) the quasi maximum likelihood estimation (QMLE) based multivariate GARCH-in-Mean specification and (ii) the generalized method of moments (GMM) techniques. Our empirical analysis based on weekly data on 58 largest Canadian firms indicates that the currency as well as the local and the world market risks are priced in the Canadian equity market. This result holds for all exchange currency rates proxies and in all sample periods. We find that the price of the world market, the local market and the currency risks is time-varying and the Canadian equity market is partially segmented.

Suggested Citation

  • Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Pricing of the currency risk in the Canadian equity market," Research in International Business and Finance, Elsevier, vol. 30(C), pages 173-194.
    • Handle: RePEc:eee:riibaf:v:30:y:2014:i:c:p:173-194
    DOI: 10.1016/j.ribaf.2013.07.002
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    Cited by:

    1. Mohammad Al‐Shboul & Sajid Anwar, 2014. "Foreign exchange rate exposure: Evidence from Canada," Review of Financial Economics, John Wiley & Sons, vol. 23(1), pages 18-29, January.
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    3. Lamia SEBAI & siwar ELLOUZ, 2022. "Variation de risque mondial, local et de change sur les marches boursiers," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 13(2), pages 2-13, December.
    4. Jaratin Lily & Imbarine Bujang & Abdul Aziz Karia & Mori Kogid, 2018. "Exchange rate exposure revisited in Malaysia: a tale of two measures," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 409-435, December.

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    More about this item

    Keywords

    Asset pricing; Equity market; Exchange rate risk pricing; Quasi maximum likelihood estimation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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