The currency composition of firms' balance sheets, asset value correlations, and capital requirements
(2017) In Global Finance Journal 34. p.89-99- Abstract
We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where just some assets and liabilities are denominated in a foreign currency. To test the significance of the remaining bias we rely on a unique database constructed by the Inter-American Development Bank (IADB) containing time-series of the asset and liability currency composition of firms in some Latin American countries. We find that the asset correlation bias and associated underestimations of Basel II capital charges are economically significant even when we account for the actual (partial) currency mismatch.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/42595f34-f19d-46cd-8ebf-939d181ed1ca
- author
- Byström, Hans LU
- organization
- publishing date
- 2017-11
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- asset correlation, bias, currency composition, currency mismatch, exchange rate, F31, G21, G33, G15
- in
- Global Finance Journal
- volume
- 34
- pages
- 11 pages
- publisher
- Elsevier
- external identifiers
-
- scopus:85016610526
- wos:000416271700007
- ISSN
- 1044-0283
- DOI
- 10.1016/j.gfj.2017.03.007
- language
- English
- LU publication?
- yes
- id
- 42595f34-f19d-46cd-8ebf-939d181ed1ca
- date added to LUP
- 2017-04-25 10:00:23
- date last changed
- 2024-05-12 12:38:13
@article{42595f34-f19d-46cd-8ebf-939d181ed1ca, abstract = {{<p>We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where just some assets and liabilities are denominated in a foreign currency. To test the significance of the remaining bias we rely on a unique database constructed by the Inter-American Development Bank (IADB) containing time-series of the asset and liability currency composition of firms in some Latin American countries. We find that the asset correlation bias and associated underestimations of Basel II capital charges are economically significant even when we account for the actual (partial) currency mismatch.</p>}}, author = {{Byström, Hans}}, issn = {{1044-0283}}, keywords = {{asset correlation; bias; currency composition; currency mismatch; exchange rate; F31; G21; G33; G15}}, language = {{eng}}, pages = {{89--99}}, publisher = {{Elsevier}}, series = {{Global Finance Journal}}, title = {{The currency composition of firms' balance sheets, asset value correlations, and capital requirements}}, url = {{http://dx.doi.org/10.1016/j.gfj.2017.03.007}}, doi = {{10.1016/j.gfj.2017.03.007}}, volume = {{34}}, year = {{2017}}, }