Exchange Risk and Market Integration

Ines Chaieb and Vihang Errunza
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Vihang Errunza: McGill University

No 14-10, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the impact of currency factor on market integration. We compare integration indices estimated from international asset pricing models with and without real exchange risk. The theoretical expectation implies the integration measures should be similar when global currency premium and the sum of global and local currency premiums are small. Our empirical results support this proposition. We also examine the sensitivity of the Pukhthuatong and Roll (2009) R square to omitted currency factors. In general, currency risk does not affect the level and the dynamics of the integration measure except under crisis conditions.

Keywords: Real exchange rate risk premium; market integration; international asset pricing; emerging markets (search for similar items in EconPapers)
JEL-codes: F30 G15 G30 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2014-02
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1410

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