Assessing the extent of exchange rate risk pricing in equity markets: emerging versus developed economies

Salifya Mpoha and Lumengo Bonga-Bonga

MPRA Paper from University Library of Munich, Germany

Abstract: This paper assesses the extent of exchange rate risk pricing in emerging and developed economies to infer whether this risk is systematic or unsystematic in these economies. The pricing of this risk is based on the two- and three-factor extended CAPM (capital asset pricing model). The US and South Africa are used as proxy for developed and emerging economies, respectively. The findings suggest strong evidence for exchange rate risk premia in both cases and highlight that contrary to many studies, exchange rate risk is systematic in developed economies, despite the possibility and variety of instruments of exchange rate hedging in these economies, particularly in developed economies.

Keywords: Exchange-Rate Exposure; Premia; Arbitrage Pricing Theory; Rolling Window; Emerging; Developed. (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2020-04-12
New Economics Papers: this item is included in nep-rmg
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