The Impact of Currency Movements on Asset Value Correlations
Author
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.
Department/s
Publishing year
2014
Language
English
Pages
178-186
Publication/Series
Journal of International Financial Markets, Institutions, and Money
Volume
31
Full text
- Available as PDF - 747 kB
- Download statistics
Document type
Journal article
Publisher
North-Holland
Topic
- Economics
Keywords
- Asset correlation
- Time-variation
- Currency risk
- Sensitivity
- Exchange rate
Status
Published
ISBN/ISSN/Other
- ISSN: 1042-4431