Events

Prof.  Adrien Verdelhan
Stephens Naphtal Professor of Finance
MIT Sloan School of Management

In their income statements, firms report the overall effect of exchange rate-induced revaluations of their monetary items, notably cash, accounts receivables and payables, and debt, all net of any financial hedging. Using publicly available data, we revisit the exchange rate disconnect puzzle at the firm level in six major currency areas. A local currency appreciation affects industries and firms heterogeneously based on their international trade balance and foreign currency debt issuance. Foreign exchange gains and losses pass through strongly to firms’ profits and are reflected in the loadings of their stock returns on exchange rates.