Cover IMF Working Papers
Currency Risk Premia in Global Stock Markets
Author: Mr. Matthew D. Merritt and Mr. Shaun K. Roache
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 194
Language:
English
Publication Date:
01 Aug 2006
DOI:
https://doi.org/10.5089/9781451864540.001
ISBN:
9781451864540
ISSN:
1018-5941
Pages:
27
Keywords:
WP; risk price
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Large fundamental imbalances persist in the global economy, with potential exchange rate implications. This paper assesses whether exchange rate risk is priced across G-7 stock markets. Given the multitude of hedging instruments available, theory suggests that stock market investors should not be compensated for currency risk. However, data covering 33 industry portfolios across seven major stock markets suggest that not only is exchange rate risk priced in many markets, but that it is time-varying and sensitive to currency-specific shocks. With stock market investors typically exhibiting "home bias," this suggests that investors are using equity asset proxies to hedge the exchange rate risks to consumption.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund