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​​Tiistai
24.5.2016
klo 10.30–11.30

Kari Heimonen (University of Jyväskylä):
Foreign Exchange Exposure – No Returns, only risk

co-authored with
Heikki Lehkonen (University of Jyväskylä) 
Kuntara Pukthuanthong (University of Missouri)


Abstract
Foreign exchange exposure and its determinants have attained a considerable amount of research ever since the Jorion’s (1990) seminal article. We focus on this question examining the profitability of investing in the U.S. stocks exposed to foreign exchange changes. Our study lends support to previous findings of foreign exposure, provides some new puzzles and robust evidence on the profitability of investing in equities with foreign exchange exposure.  First, our firm-level analysis indicates that the exchange rate exposure is rather nonlinear than linear which could explain the scant evidence of foreign exchange exposure in previous studies. Second, investing in equities subject to foreign exchange risk is not profitable; exchange rate risk is not priced in the U.S. stock market and moreover foreign exchange exposed equities have on average lower returns. Moreover, an investor can outperform the market while investing in equities with least exposed to foreign exchange changes.  

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