A market-based indicator of currency risk: Evidence from American Depositary Receipts

Stefan Eichler and Ingmar Roevekamp

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We introduce a novel currency risk measure based on American Depositary Receipts (ADRs). Using a multifactor pricing model, we exploit ADR investors’ exposure to potential devaluation losses to derive an indicator of currency risk. Using weekly data for a sample of 831 ADRs located in 23 emerging markets over the 1994-2014 period, we find that a deterioration in the fiscal and current account balance, as well as higher inflation, increases currency risk. Interaction models reveal that these macroeconomic fundamentals drive currency risk, particularly in countries with managed exchange rates, low levels of foreign exchange reserves and a poor sovereign credit rating.

Keywords: Currency risk; Currency crises; American Depositary Receipts; Emerging markets (search for similar items in EconPapers)
JEL-codes: F31 F37 G12 G15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-572.pdf (application/pdf)

Related works:
Working Paper: A Market-based Indicator of Currency Risk: Evidence from American Depositary Receipts (2016)
Working Paper: A market-based indicator of currency risk: Evidence from American Depositary Receipts (2016)
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:han:dpaper:dp-572

Access Statistics for this paper

More papers in Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät Contact information at EDIRC.
Bibliographic data for series maintained by Heidrich, Christian ().