Economics at your fingertips  

The impact of currency movements on asset value correlations

Hans Byström

Journal of International Financial Markets, Institutions and Money, 2014, vol. 31, issue C, 178-186

Abstract: This paper looks at the asset correlation bias resulting from firms’ assets and liabilities being denominated in different currencies. It focuses on the time-variation in the bias and on the dependency of the bias on currency movements. Overall, we find that the asset correlation bias for the average pair of firms in the Dow Jones Industrial Average index is significant. The bias fluctuates widely, however, and it has turned negative for shorter periods. The policy implication of the paper is that by ignoring the exchange rate component when computing portfolio credit risk one may materially underestimate the actual risk.

Keywords: Asset correlation; Time-variation; Sensitivity; Exchange rate; Currency risk (search for similar items in EconPapers)
JEL-codes: G10 F31 G21 G33 G15 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Impact of Currency Movements on Asset Value Correlations (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-07-30
Handle: RePEc:eee:intfin:v:31:y:2014:i:c:p:178-186