What Do Stock Markets Tell Us about Exchange Rates?

Gino Cenedese (), Richard Payne (), Lucio Sarno and Giorgio Valente ()

Review of Finance, 2016, vol. 20, issue 3, 1045-1080

Abstract: The sign of the correlation between equity returns and exchange rate returns can be positive or negative in theory. Using data for a broad set of forty-two countries, we find that exchange rate movements are in fact unrelated to differentials in country-level equity returns. Consequently, a trading strategy that invests in countries with the highest expected equity returns and shorts those with the lowest generates substantial returns and Sharpe ratios. These returns partially reflect compensation for global equity volatility risk, but significant excess returns remain after controlling for exposure to standard risk factors.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfv032 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: What do stock markets tell us about exchange rates? (2015)
Working Paper: What Do Stock Markets Tell Us About Exchange Rates? (2015)
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: https://EconPapers.repec.org/RePEc:oup:revfin:v:20:y:2016:i:3:p:1045-1080.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().