Cash flows, currency risk, and the cost of capital

Ding Du, Ou Hu

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Currency fluctuations can affect firms' cash flows. There is evidence that cash flows are related to a covariance risk factor in global stock markets. Taken together, these two lines of research suggest that the underlying link between currency movements and stock returns may be the cash flow. We test this transmission mechanism with the mimicking portfolio approach. Empirically, we find that our test assets have significant exposure to the currency factor-mimicking portfolio and this factor carries a significant and positive risk premium.

Original languageEnglish (US)
Pages (from-to)139-158
Number of pages20
JournalJournal of Financial Research
Volume37
Issue number2
DOIs
StatePublished - 2014

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Currency
Cost of capital
Currency risk
Cash flow
Factors
Transmission mechanism
Risk premium
Assets
Risk factors
Stock returns
Stock market
Fluctuations

ASJC Scopus subject areas

  • Finance
  • Accounting

Cite this

Cash flows, currency risk, and the cost of capital. / Du, Ding; Hu, Ou.

In: Journal of Financial Research, Vol. 37, No. 2, 2014, p. 139-158.

Research output: Contribution to journalArticle

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