IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v142y2024ics0261560624000111.html
   My bibliography  Save this article

RMB exchange rate volatility and the cross-section of Chinese A-share returns

Author

Listed:
  • Qiao, Tongshuai
  • Ding, Wenjie
  • Han, Liyan
  • Li, Donghui

Abstract

This study investigates the role of RMB exchange rate volatility in the cross-sectional pricing of Chinese A-share stocks. We find an inverted U-shaped relation between stock beta-loading on exchange rate volatility (FXV-beta) and future stock returns; that is, both stocks with high FXV-beta and those with low FXV-beta have lower future returns. We show that the underperformance of high-FXV-beta stocks is primarily driven by hedging demand. Specifically, to hedge exchange rate volatility risk, rational investors are willing to pay higher prices for high-FXV-beta stocks and accept lower future returns. We also provide evidence that the underperformance of low-FXV-beta stocks could be due to mispricing dominated by lottery investors.

Suggested Citation

  • Qiao, Tongshuai & Ding, Wenjie & Han, Liyan & Li, Donghui, 2024. "RMB exchange rate volatility and the cross-section of Chinese A-share returns," Journal of International Money and Finance, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:jimfin:v:142:y:2024:i:c:s0261560624000111
    DOI: 10.1016/j.jimonfin.2024.103024
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560624000111
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jimonfin.2024.103024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    RMB exchange rate volatility; Chinese A-shares; Cross-section of stock returns; Asset pricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:142:y:2024:i:c:s0261560624000111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.