Abstract
This paper examines the reaction of the foreign exchange market to the announcement of changes in the business environment of a country. Our results suggest that sampled political risk news conveys important information about a country's investment climate and causes its currency's exchange rate to vary. It appears, however, that the reaction of the foreign exchange market is more dramatic for unfavorable events than for favorable events. The evidence presented is also consistent with the hypothesis that the foreign exchange market is efficient in interpreting the type of event considered in this study.
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*Jean-Claude Cosset is Associate Professor of Finance at the Université Laval (Canada). He has published several articles in the area of international finance. His current research interests focus on foreign exchange markets and international financial management.
**Bruno Doutriaux de la Rianderie is a Doctoral Candidate in International Finance at the Université Laval (Canada). This research was completed while he was lecturer in finance at the Université du Québec en Abitibi-Témiscamingue (Canada).
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Cosset, JC., Doutriaux De La Rianderie, B. Political Risk and Foreign Exchange Rates: an Efficient-Market Approach. J Int Bus Stud 16, 21–55 (1985). https://doi.org/10.1057/palgrave.jibs.8490458
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DOI: https://doi.org/10.1057/palgrave.jibs.8490458