Dollar beta and stock returns
Valentina Bruno,
Ilhyock Shim and
Hyun Song Shin
No 1000, BIS Working Papers from Bank for International Settlements
Abstract:
The financial channel of exchange rates operates through changes in risk-taking by investors and is reflected in the response of financial conditions to exchange rate movements. We show that stock returns also reflect the financial channel of exchange rates, with higher local currency stock returns associated with a weaker dollar. The broad dollar index emerges as a global factor, consistent with the financial channel operating through swings in risk-taking by global investors. We introduce the "dollar beta" as the sensitivity of stock returns to swings in the broad dollar index, and show that emerging market stock indices that have a higher dollar beta tend to have higher average returns, implying that the dollar beta is a cross-section risk factor that is priced.
Keywords: global liquidity; pricing factor; emerging market; exchange rate. (search for similar items in EconPapers)
JEL-codes: G12 G15 G23 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2022-02
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)
Downloads: (external link)
https://www.bis.org/publ/work1000.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1000.htm (text/html)
Related works:
Journal Article: Dollar beta and stock returns (2022) 
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:bis:biswps:1000
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().