Is Foreign Exchange Exposure Priced? Evidence from the Bond Market

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Original languageEnglish
Publication statusPublished - 7 Jul 2020

Conference

Title2020 Annual conference of the Academy of International Business (AIB 2020)
LocationOnline
PlaceUnited States
CityMiami, Florida
Period1 - 9 July 2020

Abstract

This study offers empirical evidence on the relation between foreign exchange risk and firms’ cost of public debt. Using Fama–MacBeth two-step regressions, we find that currency risk is priced on average, and foreign currency risk explains 17.6% of bond risk premiums. Moreover, the absolute value of currency risk exposure matters as either larger positive or negative exposures imply higher spreads. We also find that currency exposure is greater for firms in more competitive or more fluid markets, and lower for firms with greater multinational activity. Additional tests show that greater tariffs are associated with lower currency risk exposures.

Bibliographic Note

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Citation Format(s)

Is Foreign Exchange Exposure Priced? Evidence from the Bond Market. / Wald, John K.; Mansi, Sattar; Qi, Yaxuan.

2020. Paper presented at 2020 Annual conference of the Academy of International Business (AIB 2020), Miami, Florida, United States.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review