Heterogeneous investor’s reaction to exchange rate movement: new evidence from a unique emerging market

Sung Bae, Mingsheng Li, Jing Shi

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Previous studies find mixed results on the relation between exchange rate movements and stock returns. We revisit the issue by exploring the effect of market efficiency and heterogeneous investors' reaction to exchange rate changes using the unique event of Chinese currency appreciation. Our results show that different investor groups react differently to exchange rate appreciation. In addition, we find that investors with limited investment opportunities react more positively to exchange rate appreciation. Our results suggest that the issues of market efficiency and the differences among investors are important factors to consider when one analyzes the relation between exchange rate movements and stock returns.
Original languageEnglish
Pages (from-to)7-22
Number of pages16
JournalEmerging Markets Finance and Trade
Volume47
Issue numberSup 1
DOIs
Publication statusPublished - 2011
Externally publishedYes

Keywords

  • Chinese stock market
  • foreign exchange rate
  • market efficiency
  • price discounts
  • stock returns

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