THE PRICING OF EXCHANGE RATE RISK IN UP AND DOWN WORLD STOCK MARKET PERIODS

Eduardo Sandoval and Arturo Vásquez

Global Journal of Business Research, 2009, vol. 3, issue 1, 27-39

Abstract: This paper examines the pricing of exchange rate risk in up and down world stock market periods using multifactor arbitrage pricing models during the period of January 1973 through June 2007. The risk premium of exchange rate exposure in up market periods appears to be small and insignificant. However, it appears to be priced and significant under down market periods. The results in this study help understand why investors decide to hedge exchange rate exposure. The above asymmetry in pricing exchange rate risk seems to justify the use of hedging strategies when investors face low international stock market returns due to depressed world stock market conditions.

JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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