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The Pricing Of Exchange Rate Risk In Up And Down World Stock Market Periods

Author

Listed:
  • Eduardo Sandoval
  • Arturo Vásquez

Abstract

This paper examines the pricing of exchange rate risk in up and down world stock market periods using multifactor arbitrage pricing models during the period of January 1973 through June 2007. The risk premium of exchange rate exposure in up market periods appears to be small and insignificant. However, it appears to be priced and significant under down market periods. The results in this study help understand why investors decide to hedge exchange rate exposure. The above asymmetry in pricing exchange rate risk seems to justify the use of hedging strategies when investors face low international stock market returns due to depressed world stock market conditions.

Suggested Citation

  • Eduardo Sandoval & Arturo Vásquez, 2009. "The Pricing Of Exchange Rate Risk In Up And Down World Stock Market Periods," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(1), pages 27-39.
    • Handle: RePEc:ibf:gjbres:v:3:y:2009:i:1:p:27-39
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    Cited by:

    1. Maela Giofré & Oleksandra Sokolenko, 2023. "Cross-border investment and the decline of exchange rate volatility: implications for Euro area bilateral investments," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(3), pages 595-627, August.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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