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The long-run component of foreign exchange volatility and stock returns

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  • Du, Ding
  • Hu, Ou

Abstract

The present paper explores the cross-sectional pricing power of foreign exchange volatility in the US stock market by decomposing it into short- and long-run components. Our approach is motivated by Bartov et al. (1996). Empirically, we find supporting evidence that the long-run component of foreign exchange volatility is priced in the US stock market. Our findings have important implications for international finance and empirical asset pricing.

Suggested Citation

  • Du, Ding & Hu, Ou, 2014. "The long-run component of foreign exchange volatility and stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 268-284.
  • Handle: RePEc:eee:intfin:v:31:y:2014:i:c:p:268-284
    DOI: 10.1016/j.intfin.2014.04.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign exchange volatility; Long-run component of foreign exchange volatility; Short-run component of foreign exchange volatility; Mimicking-factor portfolios;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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