Template-Type: ReDIF-Paper 1.0
Author-Name: Valentina Bruno
Author-X-Name-First: Valentina 
Author-X-Name-Last: Bruno
Author-Name: Ilhyock Shim
Author-X-Name-First: Ilhyock 
Author-X-Name-Last: Shim
Author-Name: Hyun Song Shin
Author-X-Name-First: Hyun
Author-X-Name-Last: Song Shin
Title: Dollar beta and stock returns
Abstract: The financial channel of exchange rates operates through changes in risk-taking by investors and is reflected in the response of financial conditions to exchange rate movements. We show that stock returns also reflect the financial channel of exchange rates, with higher local currency stock returns associated with a weaker dollar. The broad dollar index emerges as a global factor, consistent with the financial channel operating through swings in risk-taking by global investors. We introduce the "dollar beta" as the sensitivity of stock returns to swings in the broad dollar index, and show that emerging market stock indices that have a higher dollar beta tend to have higher average returns, implying that the dollar beta is a cross-section risk factor that is priced.
Length: 26 pages
Creation-Date: 2022-02
File-URL: https://www.bis.org/publ/work1000.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1000.htm
File-Format: text/html
Number: 1000
Keywords: global liquidity, pricing factor, emerging market, exchange rate.
Classification-JEL: G12, G15, G23.
Handle: RePEc:bis:biswps:1000