Digesting FOREXS: Information Transmission Across Asset Classes and Return Predictability

• 成果类型: Article
• 署名作者: Bae, Joon Woo; Da, Zhi; Zurita, Virgilio
• 署名单位: University System of Ohio; Case Western Reserve University; University of Notre Dame; Baylor University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4778
• 发表日期: 2024
• 页码: 1943-1969
• 关键词: Return predictability; currency information; foreign operations

摘要

We provide novel evidence that equity investors react to currency shocks with a delay. Using the cross-section of currency returns and the relative presence of U.S. firms in foreign economies, we compute a foreign operations-related exchange shock (FOREXS) measure. We find FOREXS to predict firms' future cash flows and stock returns, driving much of the previously documented underreaction to foreign information. An FOREXS- based long-short strategy yields a 6.74% annualized abnormal return. FOREXS predictive power comes from firms' incomplete hedging and investors' limited attention, highlighting the challenges involved when processing information from a different asset class.