The Impact of Currency Movements on Asset Value Correlations
Författare
Summary, in English
This paper looks at the asset correlation bias resulting from firms’
assets and liabilities being denominated in different currencies. It
focuses on the time-variation in the bias and on the dependency of
the bias on currency movements. Overall, we find that the asset
correlation bias for the average pair of firms in the Dow Jones
Industrial Average index is significant. The bias fluctuates widely,
however, and it has turned negative for shorter periods. The policy
implication of the paper is that by ignoring the exchange rate component when computing portfolio credit risk one may materially
underestimate the actual risk.
assets and liabilities being denominated in different currencies. It
focuses on the time-variation in the bias and on the dependency of
the bias on currency movements. Overall, we find that the asset
correlation bias for the average pair of firms in the Dow Jones
Industrial Average index is significant. The bias fluctuates widely,
however, and it has turned negative for shorter periods. The policy
implication of the paper is that by ignoring the exchange rate component when computing portfolio credit risk one may materially
underestimate the actual risk.
Avdelning/ar
Publiceringsår
2014
Språk
Engelska
Sidor
178-186
Publikation/Tidskrift/Serie
Journal of International Financial Markets, Institutions, and Money
Volym
31
Fulltext
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Dokumenttyp
Artikel i tidskrift
Förlag
North-Holland
Ämne
- Economics
Nyckelord
- Asset correlation
- Time-variation
- Currency risk
- Sensitivity
- Exchange rate
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 1042-4431