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Foreign Exchange Volatility Is Priced in Equities

  • Hui Guo
  • Christopher J. Neely
  • Jason Higbee

"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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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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