Firm-level effects of asymmetric intervention in foreign exchange markets: Evidence from the Swiss currency floor

Daniel Streit

Journal of International Money and Finance, 2016, vol. 60, issue C, 289-312

Abstract: In January 2015, the Swiss National Bank (SNB) abandoned the Swiss franc's exchange rate floor against the Euro. This paper is the first to study the firm-level effects of this asymmetric type of central bank intervention in foreign exchange markets. Using weekly stock returns for a sample of Swiss non-financial firms, I find significant reductions in total stock return volatility as well as market risk following the introduction of the currency floor. Accounting for the asymmetric nature of the intervention, I show that the enforcement of this policy solely manifests in a significant reduction of incremental EUR/CHF exchange rate risk exposures of exporting firms, while importing firms experience reductions in proportion to the market portfolio only. Thus, the asymmetric policy design is reflected in asymmetric responses of firm-level currency exposures. All effects, however, do not depend on the extent of business activity in the Eurozone. The overall results suggest that the currency floor was successful in supporting the performance of the Swiss economy by effectively reducing stock return sensitivities to market fluctuations and EUR/CHF exchange rate volatility.

Keywords: Euro; Swiss franc; Currency floor; Central bank intervention; Market risk; Foreign exchange rate risk (search for similar items in EconPapers)
JEL-codes: E58 F31 G30 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:60:y:2016:i:c:p:289-312

DOI: 10.1016/j.jimonfin.2015.09.002

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