This note investigates effects of exchange rate uncertainty on optimal trade policies and market prices within a standard export subsidy model. As exchange rate changes, relative efficiencies of firms in different countries change. In accordance with the conventional result, we show that changes...

We jointly re-specify the relative purchasing power parity (RPPP) and uncovered interest rate parity (UIP) conditions as the (log) ratio of stochastic discount factors by inverting the market price of risk formula. Our empirical model provides new insights, which show that violations to UIP and...

We examine an international “Rule of Three” (RoT) market that allows within and between countries competition. The addition of a domestic competitor increases the exchange-rate exposure of both competing firms relative to a duopoly, unless the exchange-rate passthrough of one of its rivals...

Company directors have a legal and moral responsibility to preserve the corporate entity. They must not take unnecessary risks leading to financial distress. Excessive borrowing and foreign exchange exposure entail such risk. The most obvious risk is inability to make loan payments when due. In...

We develop an equilibrium model in which exchange rates, stock prices and capital flows are jointly determined under incomplete forex risk trading. Incomplete hedging of forex risk, documented for U.S. global mutual funds, has three important implications: 1) exchange rates are almost as...

I use Forex trading data to study how risks associated with the lack of liquidity contribute to the dynamics of 17 spot exchange rates through their time-varying contributions to risk premia. I find that liquidity risk matters. All the foreign exchange risk premia compensate investors for...

A key theoretical prediction in financial economics is that under risk neutrality and rational expectations, a currency's forward rates should form unbiased predictors of future spot rates. Yet scores of empirical studies report negative slope coefficients from regressions of spot rates on...

This paper focuses on revisiting an old issue by advanced econometrics analysis: the risks in the U.S. stock market. We analyze the firm's exposure to exchange rate, interest rate, and market shocks by the pooled regression with the error cross-section dependency. We not only examine the...

This study empirically examines the effects of currency depreciation on the exporting firms' borrowing costs and exports. Using Korean data, first we find evidence that unanticipated currency depreciation increases the firm-level real interest rate for firms carrying foreign-currency debts, and...

Separate literatures study violations of uncovered interest parity using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate...