Foreign exchange exposure and the pricing of currency risk in equity returns: some Australian evidence

Geoffrey F. Loudon*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)

Abstract

Having regard to the importance of knowing whether equity returns are sensitive to exchange rate changes and if currency risk is priced when making international financial management decisions, the following evidence is provided in this paper. Although equity returns of Australian industries display differential ex post sensitivity to exchange rate movements, evidence from a two factor asset pricing model suggests that equity returns do not include any premium for currency risk borne. One implication of these findings is that corporate hedging of currency exposure may not add value.

Original languageEnglish
Pages (from-to)335-354
Number of pages20
JournalPacific-Basin Finance Journal
Volume1
Issue number4
DOIs
Publication statusPublished - 1993

Keywords

  • Currency exposure
  • Currency hedging
  • Currency risk premium
  • International financial management
  • Multifactor asset pricing

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