Foreign Exchange Volatility Is Priced in Equities
Hui Guo (),
Christopher Neely () and
Financial Management, 2008, vol. 37, issue 4, 769-790
This paper finds that standard asset pricing models fail to explain the significantly negative delta hedging errors that occur as a result of the purchase of options on foreign exchange futures. Foreign exchange volatility does influence stock returns, however. The volatility of the JPY/USD exchange rate predicts the time series of stock returns and is priced in the cross‐section of stock returns.
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Working Paper: Foreign exchange volatility is priced in equities (2006)
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