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Exchange Risk and Market Integration

Author

Listed:
  • Ines CHAIEB

    (University of Geneva and Swiss Finance Institute)

  • Vihang ERRUNZA

    (McGill University)

Abstract

We investigate the impact of currency factor on market integration. We compare integration indices estimated from international asset pricing models with and without real exchange risk. The theoretical expectation implies the integration measures should be similar when global currency premium and the sum of global and local currency premiums are small. Our empirical results support this proposition. We also examine the sensitivity of the Pukhthuatong and Roll (2009) R square to omitted currency factors. In general, currency risk does not affect the level and the dynamics of the integration measure except under crisis conditions.

Suggested Citation

  • Ines CHAIEB & Vihang ERRUNZA, 2014. "Exchange Risk and Market Integration," Swiss Finance Institute Research Paper Series 14-10, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1410
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    File URL: http://ssrn.com/abstract=2397727
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    Cited by:

    1. Boubakri, Salem & Couharde, Cécile & Raymond, Hélène, 2016. "Effects of financial turmoil on financial integration and risk premia in emerging markets," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 120-138.
    2. Boamah, Nicholas Addai & Watts, Edward J. & Loudon, Geoffrey, 2016. "Investigating temporal variation in the global and regional integration of African stock markets," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 103-118.

    More about this item

    Keywords

    Real exchange rate risk premium; market integration; international asset pricing; emerging markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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