Asset prices and exchange risk: Empirical evidence from Canada

Asset prices have been found to respond to unpredicted changes in macroeconomic variables in a number of studies. This paper focuses on the relationship between economic factors and the stock market for a small open economy, namely Canada. Exchange risk is observed to have a significant impact on firm value in that country between 1971 and 2004. Inflation risk also played a non negligible role during the seventies and eighties. The role played by market risk is harder to ascertain.