 Predictability in international stock returns using currency fluctuations and forward rate forecastsJiexin Wang, Xue Han, Emily J. Huang and Chris Yost-Bremm The North American Journal of Economics and Finance, 2020, vol. 52, issue C Abstract: We find that currency risk, specifically dollar exchange rate risk, is a determinant in firm stock returns worldwide. Firms exposed to various dollar exchange rate risks worldwide exhibit strong differences in expected returns, and firms with previously high sensitivity to their home country’s exchange rate fluctuation subsequently outperform during the following six to twelve months. This effect is robust across countries, time, exchange rate policies, and macroeconomic environments. We find that information in currency forward rates provides additional, useful information when predicting future returns of these currency-sensitive firms, and dynamic, state-space estimation of currency forward rate term structures complements the predictability. Keywords: International finance; Currency markets; Stock return predictability; Forecasting exchange rates; International stock markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819303195 DOI: 10.1016/j.najef.2019.101108 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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