Short-horizon excess returns and exchange rate and interest rate effects

Nathan Lael Joseph; Neophytos Lambertides; Christos S. Savva

doi:10.1016/j.intfin.2015.04.005

Short-horizon excess returns and exchange rate and interest rate effects

Nathan Lael Joseph, Neophytos Lambertides^*, Christos S. Savva

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.

Original language	English
Pages (from-to)	54-76
Number of pages	23
Journal	Journal of International Financial Markets, Institutions and Money
Volume	37
Early online date	6 May 2015
DOIs	https://doi.org/10.1016/j.intfin.2015.04.005
Publication status	Published - Jul 2015

Bibliographical note

Keywords

bivariate GJR-GARCH-M
exchange rate and interest rate effects
Fama-French-Carhart (FFC) factors
smooth transition function
time-varying conditional correlations

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10.1016/j.intfin.2015.04.005

Short-horizon excess returns and exchange rate and interest rate effects
© 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 1.51 MBLicence: CC BY-NC-ND 3.0

Cite this

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title = "Short-horizon excess returns and exchange rate and interest rate effects",

abstract = "We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.",

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doi = "10.1016/j.intfin.2015.04.005",

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AU - Joseph, Nathan Lael

AU - Lambertides, Neophytos

AU - Savva, Christos S.

PY - 2015/7

Y1 - 2015/7

N2 - We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.

AB - We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.

KW - bivariate GJR-GARCH-M

KW - exchange rate and interest rate effects

KW - Fama-French-Carhart (FFC) factors

KW - smooth transition function

KW - time-varying conditional correlations

UR - http://www.scopus.com/inward/record.url?scp=84930199466&partnerID=8YFLogxK

UR - https://www.sciencedirect.com/science/article/pii/S1042443115000530?via%3Dihub

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DO - 10.1016/j.intfin.2015.04.005

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SP - 54

EP - 76

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

ER -

Short-horizon excess returns and exchange rate and interest rate effects

Abstract

Bibliographical note

Keywords

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