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

doi:10.1016/j.irfa.2020.101568

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

School of Accounting and Finance

Research output: Contribution to journal › Article (Academic Journal) › peer-review

4 Citations (Scopus)

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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 language	English
Article number	101568
Number of pages	13
Journal	International Review of Financial Analysis
Volume	72
Early online date	10 Sep 2020
DOIs	https://doi.org/10.1016/j.irfa.2020.101568
Publication status	Published - 1 Nov 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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This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://doi.org/10.1016/j.irfa.2020.101568. Please refer to any applicable terms of use of the publisher.
Accepted author manuscript, 934 KBLicence: CC BY-NC-ND

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Dr Tuan Q Ho
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- School of Accounting and Finance - Senior Lecturer in Finance and Accounting
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title = "Does foreign exchange risk matter to equity research analysts when forecasting stock prices? Evidence from U.S. firms",

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.",

keywords = "Foreign exchange risk, Currency risk, Financial risk, Analyst forecast, Forecast error, Target price",

author = "Ho, {Tuan Q} and Yen Nguyen and Bhavik Parikh and Dinh-Tri Vo",

year = "2020",

month = nov,

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doi = "10.1016/j.irfa.2020.101568",

language = "English",

volume = "72",

journal = "International Review of Financial Analysis",

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T1 - Does foreign exchange risk matter to equity research analysts when forecasting stock prices? Evidence from U.S. firms

AU - Ho, Tuan Q

AU - Nguyen, Yen

AU - Parikh, Bhavik

AU - Vo, Dinh-Tri

PY - 2020/11/1

Y1 - 2020/11/1

N2 - 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.

AB - 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.

KW - Foreign exchange risk

KW - Currency risk

KW - Financial risk

KW - Analyst forecast

KW - Forecast error

KW - Target price

U2 - 10.1016/j.irfa.2020.101568

DO - 10.1016/j.irfa.2020.101568

M3 - Article (Academic Journal)

VL - 72

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

SN - 1057-5219

M1 - 101568

ER -

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

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