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

Nathan Lael Joseph, Neophytos Lambertides, Christos S. Savva

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

stocks. 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 languageEnglish
Pages (from-to)54-76
Number of pages23
JournalJournal of International Financial Markets, Institutions and Money
Volume37
DOIs
Publication statusPublished - 1 Jul 2015
Externally publishedYes

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Financial Markets, Institutions and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Financial Markets, Institutions and Money, 37, (2015) DOI: 10.1016/j.intfin.2015.04.005
© 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

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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