Does foreign exchange risk matter to equity research analysts when forecasting stock prices? Evidence from U.S. firms

Tuan Q Ho*, Yen Nguyen*, Bhavik Parikh*, Dinh-Tri Vo*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)

Abstract

We study the relationship between the foreign exchange risk and analyst target price forecast error using U.S. firm-level data for the sample period between 1999 and 2014. We find that the target price forecast error is higher when foreign exchange risk is higher. The relationship is stronger for smaller firms and less pronounced among financial firms. Collectively, the findings suggest that analysts make fewer errors when forecasting for firms that are more capable of managing foreign exchange risks. These findings imply that either analyst does not make a significant effort in incorporating foreign exchange risk into their forecast models, or they do not have the skills for that task.
Original languageEnglish
Article number101568
Number of pages13
JournalInternational Review of Financial Analysis
Volume72
Early online date10 Sep 2020
DOIs
Publication statusE-pub ahead of print - 10 Sep 2020

Structured keywords

  • AF Financial Markets
  • AF Financial Reporting

Keywords

  • Foreign exchange risk
  • Currency risk
  • Financial risk
  • Analyst forecast
  • Forecast error
  • Target price

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