Is Currency Risk Priced in Global Equity Markets?*

Exposure to currency risk: definition and measurement

George Andrew Karolyi and Ying Wu

Review of Finance, 2021, vol. 25, issue 3, 863-902

Abstract: We offer new evidence on how currency risk is priced in the cross-section of global stock returns. The focus is on two currency risk factors—a dollar-risk factor and a carry-trade-risk factor—and their explanatory power for a variety of test assets comprised monthly returns for over 37,000 stocks from forty-six countries and over four decades. We obtain reliable positive evidence of the pricing of carry-trade factor risk and the implied premia are statistically significant and economically as expected. The pricing of the dollar-risk factor is less reliable. Our inferences depend critically on the inclusion of emerging markets.

Keywords: International asset pricing; currency risk; exchange rates (search for similar items in EconPapers)
JEL-codes: F30 F31 G11 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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