Assessing the extent of exchange rate risk pricing in equity markets: emerging versus developed economies

Mpoha, Salifya and Bonga-Bonga, Lumengo (2020): Assessing the extent of exchange rate risk pricing in equity markets: emerging versus developed economies.

Abstract

This paper assesses the extent of exchange rate risk pricing in emerging and developed economies to infer whether this risk is systematic or unsystematic in these economies. The pricing of this risk is based on the two- and three-factor extended CAPM (capital asset pricing model). The US and South Africa are used as proxy for developed and emerging economies, respectively. The findings suggest strong evidence for exchange rate risk premia in both cases and highlight that contrary to many studies, exchange rate risk is systematic in developed economies, despite the possibility and variety of instruments of exchange rate hedging in these economies, particularly in developed economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange-Rate Exposure, Premia, Arbitrage Pricing Theory, Rolling Window, Emerging, Developed.
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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