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| Author: | Francis, B.B. Hasan, I. Hunter, D.M. |
| Title: | Can hedging tell the full story? Reconciling differences in United States aggregate- and industry-level exchange rate risk premium |
| Journal: | Journal of Financial Economics
2008 : NOV, VOL. 90:2, p. 169-196 |
| Index terms: | USA industries competition hedging currency exchange rates risk premium costs equities asset valuation |
| Freeterms: | models |
| Language: | eng |
| Abstract: | By applying a conditional asset pricing model to 36 industries of the United States (U.S.), all industries are found having a significant currency premium (hereafter as: c-p.), adding about 2.47 percentage points to the cost of equity and accounting for appr. 11.7 percent of total risk premium (as: r-p.) in absolute value. Cross-industry variation in the c-p. is explained by foreign income, industry competitiveness, leverage, liquidity, and other characteristics, while its time variation is explained by U.S. aggregate foreign trade, monetary policy, growth opportunities, and other variables. It is indicated that not hedging but methodological weakness explains the insignificant industry currency r-p. found in previous work, thus resolving the puzzle of currency r-p. being important at the aggregate stock market level, but not at the industry level. |
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