Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market

Mohammad Al-Shboul; Sajid Anwar

doi:10.1016/j.econmod.2013.11.034

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Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market

Journal article

Open access

Peer reviewed

Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market

Mohammad Al-Shboul and Sajid Anwar

Economic Modelling, Vol.37, pp.451-463

2014

DOI: https://doi.org/10.1016/j.econmod.2013.11.034

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Abstract

foreign exchange risk

time-varying risk

exchange rate risk pricing

Canadian equity market

rolling window regression

asset pricing

herding behavior

cointegration

This paper aims to extend the existing literature on foreign exchange rate risk pricing. Unlike the existing studies on Canada, we use six alternative bilateral and one multilateral exchange rate proxies. Furthermore, using both a two-factor and a three-factor capital asset pricing model (CAPM), we test for the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. The estimated results based on both the ordinary least squares (OLS) and generalized least squares (GLS) estimation techniques confirm that exchange rate risk in the Canadian equity market is priced and that the pricing of this risk is time-varying. This result holds for all seven exchange rate proxies. Our empirical analysis also suggests the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. This relationship is found to be insensitive to variations in the world market return.

Details

Title: Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market
Authors: Mohammad Al-Shboul (Author) - Al-Hussein Bin Talal University, Jordan
Sajid Anwar (Author) - University of the Sunshine Coast - Faculty of Arts and Business
Publication details: Economic Modelling, Vol.37, pp.451-463
Publisher: Elsevier BV, North-Holland
Date published: 2014
DOI: 10.1016/j.econmod.2013.11.034
ISSN: 0264-9993
Organisation Unit: School of Business and Creative Industries; Indigenous and Transcultural Research Centre; University of the Sunshine Coast, Queensland; USC Business School - Legacy
Language: English
Record Identifier: 99449837002621
Output Type: Journal article

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