Currency carry trades, risk management, and firm value: Evidence from Korean banking industry

Sungjae Francis Kim

Journal of International Financial Markets, Institutions and Money, 2023, vol. 88, issue C

Abstract: I examine the relationship between a firm's risk-taking, risk management, and firm value using a unique dataset of banks' currency carry trades. I find that banks can significantly increase bank value by hedging market and credit risks while engaging in carry trades. I also find that interest rate differentials stemming from monetary policy divergences have a significant impact on banks' risk-taking. The empirical results show that banks can increase their market value more when the interest rate differential is narrower, more sharply when they actively engage in currency carry trades, and most sharply when they actively hedge interactive risks.

Keywords: Risk-taking; Carry trades; Risk management; Hedge; Firm value; Monetary policy (search for similar items in EconPapers)
JEL-codes: F30 F31 G21 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:88:y:2023:i:c:s104244312300118x

DOI: 10.1016/j.intfin.2023.101850

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