In this paper, we test whether foreign investors take into account foreign exchange
risk differently and
thus price the risk differently than local investors. We apply a two-step
methodological approach to
American Depository Receipts of Australia, France, Japan, and the U.K. traded on
the NYSE. Our results
show that foreign investors generally require a different risk premium on foreign
exchange risk present in
international investments than local investors. The degree of the difference in
exchange risk pricing,
however, varies significantly across countries. While significant difference in
pricing exchange risk
between foreign and local investors is observed for Australia, France, and Japan,
no such pricing
difference is noticed for the U.K. We further find that the pricing difference
between foreign and local
investors is associated with a different type of exchange risk. For Australia and
France, the pricing
difference, though in a different direction, is mainly attributed to the exchange
risk of underlying stock
returns. On the contrary, the pricing difference for Japanese ADRs is attributed to
the exchange risk
associated with currency translation. We offer some explanations for our findings.
학회소식
공지사항
[2003년 제 2차] Do Foreign Investors Price Foreign Exchange Risk Di
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2003-07-12