Trade competitiveness and the aggregate returns in global stock markets

Mardy Chiah, Huaigang Long, Adam Zaremba and Zaghum Umar

Journal of Economic Dynamics and Control, 2023, vol. 148, issue C

Abstract: Using the change in the real effective exchange rate (REER) to reflect trade competitiveness, we examine its role in the cross-section of global equity returns. The changes in REER negatively affect stock market returns. The REER effect is robust after controlling for known risk factors and market characteristics. Furthermore, it remains pervasive across different periods and subsamples. Our findings support the conventional wisdom that appreciating currency harms trade values, consequently dampening a firm's stock market performance.

Keywords: Trade competitiveness; Real effective exchange rate; Country equity risk premium; Country stock returns; International stock markets; Asset pricing; Return predictability; The cross-section of stock returns (search for similar items in EconPapers)
JEL-codes: F14 G12 G14 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:148:y:2023:i:c:s0165188923000246

DOI: 10.1016/j.jedc.2023.104618

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