Political Risk and Foreign Exchange Rates: an Efficient-Market Approach

Jean-Claude Cosset and Bruno Doutriaux de la Rianderie
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Jean-Claude Cosset: Université Laval
Bruno Doutriaux de la Rianderie: Université Laval

Journal of International Business Studies, 1985, vol. 16, issue 3, 55 pages

Abstract: This paper examines the reaction of the foreign exchange market to the announcement of changes in the business environment of a country. Our results suggest that sampled political risk news conveys important information about a country's investment climate and causes its currency's exchange rate to vary. It appears, however, that the reaction of the foreign exchange market is more dramatic for unfavorable events than for favorable events. The evidence presented is also consisted with the hypothesis that the foreign exchange market is efficient in interpreting the type of event considered in this study.© 1985 JIBS. Journal of International Business Studies (1985) 16, 21–55

Date: 1985
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