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How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?

Author

Listed:
  • Matthias EFING

    (University of Geneva and Swiss Finance Institute (PhD Program))

  • Rüdiger FAHLENBRACH

    (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute)

  • Christoph HERPFER

    (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute (PhD Program))

  • Philipp KRÜGER

    (University of Geneva and Swiss Finance Institute)

Abstract

The Swiss National Bank surprisingly announced in January 2015 that it would no longer hold the Swiss franc at a fixed exchange rate of 1.2 Swiss francs per Euro, a peg it had defended for more than three years. The Swiss franc appreciated by approximately 15% immediately after the announcement. We exploit the removal of the currency peg to study how investors and firms respond to exogenous foreign currency shocks. We find large negative announcement returns for Swiss firms with significant foreign currency exposure. Affected firms experience a drop in profitability and react by reducing capital expenditures and moving production abroad.

Suggested Citation

  • Matthias EFING & Rüdiger FAHLENBRACH & Christoph HERPFER & Philipp KRÜGER, 2015. "How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?," Swiss Finance Institute Research Paper Series 15-65, Swiss Finance Institute, revised Jan 2016.
  • Handle: RePEc:chf:rpseri:rp1565
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    References listed on IDEAS

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    Cited by:

    1. Bonadio, Barthélémy & Fischer, Andreas M & Sauré, Philip, 2016. "The speed of the exchange rate pass-through," CEPR Discussion Papers 11195, C.E.P.R. Discussion Papers.
    2. Hau, Harald & Huang, Yi & Wang, Gewei, 2016. "Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy," CEPR Discussion Papers 11429, C.E.P.R. Discussion Papers.
    3. Bonadio, Barthélémy & Fischer, Andreas M. & Saure, Philip, 2016. "The speed of exchange rate pass-through," Globalization and Monetary Policy Institute Working Paper 282, Federal Reserve Bank of Dallas.
    4. repec:eee:eecrev:v:104:y:2018:i:c:p:38-67 is not listed on IDEAS
    5. Harald Hau & Yi Huang & Gewei Wang, 2017. "Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy," CESifo Working Paper Series 6637, CESifo Group Munich.

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