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How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?

Matthias Efing, Ruediger Fahlenbrach, Christoph Herpfer and Philipp Krüger
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Christoph Herpfer: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute (PhD Program)
Philipp Krüger: University of Geneva and Swiss Finance Institute

No 15-65, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The Swiss National Bank surprisingly announced in January 2015 that it would no longer hold the Swiss franc at a fixed exchange rate of 1.2 Swiss francs per Euro, a peg it had defended for more than three years. The Swiss franc appreciated by approximately 15% immediately after the announcement. We exploit the removal of the currency peg to study how investors and firms respond to exogenous foreign currency shocks. We find large negative announcement returns for Swiss firms with significant foreign currency exposure. Affected firms experience a drop in profitability and react by reducing capital expenditures and moving production abroad.

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Date: 2015-12, Revised 2016-01
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