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Foreign exchange volatility is priced in equities

Hui Guo (), Jason Higbee and Christopher Neely ()

No 2004-029, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper finds that standard asset pricing models fail to explain the significantly positive delta hedging errors from writing options on foreign exchange futures. Foreign exchange volatility does influence stock returns, however. The volatility of the JPY/USD exchange rate predicts the time series of stock returns and is priced in the cross-section of stock returns. Foreign exchange volatility risk might be priced because of its relation to foreign exchange level risk. ; Earlier title: Is foreign exchange delta hedging risk priced?

Keywords: Foreign exchange; Assets (Accounting); Prices (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-fin and nep-rmg
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Journal Article: Foreign Exchange Volatility Is Priced in Equities (2008) Downloads
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Handle: RePEc:fip:fedlwp:2004-029