Advanced

The Impact of Currency Movements on Asset Value Correlations

Byström, Hans LU (2014) In Journal of International Financial Markets, Institutions, and Money 31. p.178-186
Abstract
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.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Asset correlation, Time-variation, Currency risk, Sensitivity, Exchange rate
in
Journal of International Financial Markets, Institutions, and Money
volume
31
pages
178 - 186
publisher
North-Holland
external identifiers
  • wos:000338738200008
  • scopus:84901228568
ISSN
1042-4431
DOI
10.1016/j.intfin.2014.03.014
language
English
LU publication?
yes
id
c2d8f167-17a0-4b68-9df3-38c1eadcb795 (old id 4499563)
date added to LUP
2014-07-21 12:05:45
date last changed
2017-01-01 03:46:04
@article{c2d8f167-17a0-4b68-9df3-38c1eadcb795,
  abstract     = {This paper looks at the asset correlation bias resulting from firms’<br/><br>
assets and liabilities being denominated in different currencies. It<br/><br>
focuses on the time-variation in the bias and on the dependency of<br/><br>
the bias on currency movements. Overall, we find that the asset<br/><br>
correlation bias for the average pair of firms in the Dow Jones<br/><br>
Industrial Average index is significant. The bias fluctuates widely,<br/><br>
however, and it has turned negative for shorter periods. The policy<br/><br>
implication of the paper is that by ignoring the exchange rate component when computing portfolio credit risk one may materially<br/><br>
underestimate the actual risk.},
  author       = {Byström, Hans},
  issn         = {1042-4431},
  keyword      = {Asset correlation,Time-variation,Currency risk,Sensitivity,Exchange rate},
  language     = {eng},
  pages        = {178--186},
  publisher    = {North-Holland},
  series       = {Journal of International Financial Markets, Institutions, and Money},
  title        = {The Impact of Currency Movements on Asset Value Correlations},
  url          = {http://dx.doi.org/10.1016/j.intfin.2014.03.014},
  volume       = {31},
  year         = {2014},
}