Doctoral thesis: Single currencies inaccurate measures of asset prices
According to Olugbenga Olufeagba, who will defend his doctoral thesis ''The currency effect on stock market relationships and stock return forecast", using single currencies as measures of asset prices can lead to distortions in expected market relationships.
"We need a more stable unit of account, as the volatility of single currencies has been deleterious to asset valuation, and in effect, led to higher translation risk,” says Olufeagba.
His thesis addresses an often neglected, but very important area of asset pricing literature - how the currency of valuing an asset affects the assumed interactions and interrelationships across different markets. Previous studies have examined the relationships between the different financial markets, but by valuing the assets in the currency of the jurisdiction in which the asset is domiciled. The continuous variation in the value of currencies, however, suggests that this is an inappropriate unit of measure.
“The results confirm the existence of a currency premium in asset prices, and suggests that previously documented relationships between the stock and exchange rate markets may be due to the interaction in the currency component rather than between the two markets. Valuing both the stock prices and the exchange rate in the same aggregate unit of account unveils the true interaction between both markets, Olufeagba claims.
The currency effect is also prevalent in interactions between stock markets and macroeconomic variables, as well as stock return forecasts. According to Olufeagba, the currency effect suggests that assets are better valued in an aggregate unit of account and thus has wide ranging and far reaching implications for asset valuation, particularly for a world that is accustomed to valuing assets in single currencies.
"Mitigating the effect of volatile single currencies will go a long way in reducing risks associated with financial markets. It might be time to introduce a single, invariant global currency," suggests Olufeagba.
Olufeagba's thesis consists of a collection of articles, employing a variety of methodological approaches to uncover new insights about the significance of the currency of valuation of an asset.
M.Sc. (Econ.) Olugbenga Olufeagba defends his doctoral thesis in Finance: “The currency effect on stock market relationships and stock return forecast” on Friday 11 March.
Date and Time: 11 March 2016, at 12:00
Location: Hanken School of Economics, Assembly Hall, Kirjastonkatu 16, Vaasa, Finland
Opponent: Professor Björn Hansson, Lund University, Sweden
Custos: Professor Johan Knif, Hanken School of Economics, Finland
A copy of the thesis can be downloaded via this link: https://helda.helsinki.fi/handle/10138/160323
For more information, please contact:
Olugbenga Olufeagba
Olugbenga.Olufeagba@hanken.fi