A market-based measure for currency risk in managed exchange rate regimes

Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching Based C-Vine Copulas Method

“…Nigeria's stock market, on the other hand, is not linked to the global stock market, and currency risk is not priced. Eichler and Roevekamp (2018) devised a novel currency risk metric based on American depositary receipts (ADR). They employed an ADR augmented pricing model, and the results showed a worsening fiscal balance, resulting in a rise in currency risk due to rising inflation.…”

“…In summary, prior studies on the pricing of currency risk in equity markets relied heavily on unconditional models and other methods based on individuals, and emerging countries, with the exception of Moore and Wang (2014), who looked at how currency risk is priced on stock markets in developed and emerging Asian markets. The majority of these studies used data from the US, Japan, Europe, and a few African countries (Choi et al 1998;De Santis and Gerard 1998;Saleem and Vaihekoski 2010;Boako and Alagidede 2017;Tai 2008;Antell and Vaihekoski 2007;Eichler and Roevekamp 2018). Some research, such as (Al-Shboul and Anwar 2014; Karolyi and Wu 2021;Kodongo and Ojah 2014;Azher and Iqbal 2016;Chkili 2012;Choi et al 1998), found evidence of exchange rate risk pricing on stock markets, while (Jorion 1991;Hamao 1988) found no evidence of significant exchange rate risk pricing.…”

“…Some research, such as (Al-Shboul and Anwar 2014; Karolyi and Wu 2021;Kodongo and Ojah 2014;Azher and Iqbal 2016;Chkili 2012;Choi et al 1998), found evidence of exchange rate risk pricing on stock markets, while (Jorion 1991;Hamao 1988) found no evidence of significant exchange rate risk pricing. Moreover, (De Santis and Gerard 1998;Gupta and Finnerty 1992;Kodongo and Ojah 2012) found mixed results; some researchers employed unconditional models, while others used innovative estimating techniques, including conditional methods (CAPM and ICAPM) in the case of (Saleem and Vaihekoski 2010;Eichler and Roevekamp 2018;Carrieri and Majerbi 2006;Azher and Iqbal 2016;Kodongo and Ojah 2012;Boako and Alagidede 2017;Kodongo and Ojah 2014;Gupta and Finnerty 1992). The mentioned authors also employed the GARCH-in-Mean approach in the previous literature, while others depended on the GMM, SDF, APC, ADR, CAvaR, VaR, coVaR, GARCH, and APT.…”