A Study on asset price fluctuation and the impact of foreign exchange rate on equity pricing

摘要

The present stu dy took an attempt to identify the asset price fluctuations and the role of exchange rate as premium or discount for some common stocks with respect to 4 major international stock markets. Considering the data for approximately 10 stocks between 1 st April 2003 to 31 st March 2008, in USA, INDIA, United Kingdom and Germany, the study concludes that the average change in returns obtained due to currency volatility is high in case of Indian companies as compared to Germany and UK which implies that the currenc y volatility adds a premium to the return of the companies trade in Indian markets as compared to USA stock markets. At the same time, most of the UK and German companies are having positive returns implying the currency volatility acts as a discounting fa ctor in the stock markets of UK and Germany. The negative Gamma at Indian and UK stock market concludes an inverse relationship between assets price movements and exchange rate fluctuations, where as a positive Gamma coefficient of Germany. Thus, it can be concluded that the Exchange Rate risk certainly affects the stocks trading in two different stock markets. But its effect and whether it acts as a premium or discount over the returns, depends on the foreign rate movement with respect to the stock market.