Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129275
Authors: 
Eichler, Stefan
Roevekamp, Ingmar
Year of Publication: 
2016
Series/Report no.: 
IWH Discussion Papers 4/2016
Abstract: 
We introduce a novel currency risk measure based on American Depositary Receipts (ADRs). Using a multifactor pricing model, we exploit ADR investors' exposure to potential devaluation losses to derive an indicator of currency risk. Using weekly data for a sample of 831 ADRs located in 23 emerging markets over the 1994-2014 period, we find that a deterioration in the fiscal and current account balance, as well as higher inflation, increases currency risk. Interaction models reveal that these macroeconomic fundamentals drive currency risk, particularly in countries with managed exchange rates, low levels of foreign exchange reserves and a poor sovereign credit rating.
Subjects: 
currency risk
currency crises
American depositary receipts
emerging markets
JEL: 
F31
F37
G12
G15
Additional Information: 
Corrected version uploaded 2016-07-14.
Document Type: 
Working Paper

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