The effect of systematic exchange rate risk on asset returns by using consumption-based asset pricing (Case study: companies admitted to the Tehran Stock Exchange)

Document Type : Research Paper

Authors
Javad Dadashi 1
Seyed Ali Nabavi Chashmi 2
Erfan Memarian 3
1 Department of Financial Engineering, Babol Branch, Islamic Azad University, Babol, Iran
2 Department of Financial Management, Babol Branch, Islamic Azad University, Babol, Iran
3 Department of Economic, Babol Branch, Islamic Azad University, Babol, Iran
10.22075/ijnaa.2022.28990.4038
Abstract
Along with the increase in trade between countries, exchange rate changes are considered as one of the most important risk factors in the financial markets, so these changes affect macroeconomic variables such as the price of imported goods and services, the price of domestically produced goods, and the yield of companies' shares. The purpose of this research is to investigate the relationship between exchange rate changes and asset returns in the framework of a theoretical and empirical model of the consumption-based capital asset pricing model (CCAPM), for this purpose, through the development of a basic CCAPM model with the help of Epstein and Zin's return utility function and entering Imported consumer goods in it, this relationship is examined. The research sample included 69 companies in Tehran Stock Exchange and monthly data from 1390 to 1398. Linear asset pricing model using Fama and Macbeth's two-stage regression method, the effects of exchange rate risk on asset returns were investigated. The estimation results of the two-stage regression model or the linear asset pricing model indicate that the beta coefficient of the exchange rate (exchange rate risk adjustment, $\lambda_1$) is equal to 0.81, that is, there is a positive and significant relationship between the exchange rate risk adjustment and the asset return adjustment.
Keywords
systematic risk
exchange rate
return on assets
asset pricing model based on consumption
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International Journal of Nonlinear Analysis and Applications
Volume 14, Issue 7
July 2023
Pages 197-206

  • Receive Date 14 September 2022
  • Revise Date 14 November 2022
  • Accept Date 26 November 2022

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