Pricing Currency Risk in Two Interlinked Stock Markets

Jan Antell, Mika Vaihekoski

Research output: Contribution to journalArticleScientificpeer-review


We investigate the role of currency risk on stock markets in two interlinked Nordic countries exhibiting a gradual move from fixed to floating exchange rate regime. Tests are conducted for a conditional asset pricing model using the Ding and Engle (2001) specification which allows estimation of multivariate GARCH-in mean models. Using a sample period from 1970 to 2009, we find that the currency risk is priced in both stock markets, and that the price and the risk premium are lower after the flotation of the currencies. We also find some evidence of cross-country
exchange rate effects. Our model has many practical applications and can easily be
applied to study other countries, different asset classes, or industries that are closely connected.
Original languageEnglish
Peer-reviewed scientific journalApplied Finance Letters
Issue number1
Pages (from-to)16-21
Number of pages6
Publication statusPublished - 30.09.2012
MoE publication typeA1 Journal article - refereed


  • 511 Economics
  • KOTA2012


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