Firm Valuation Earnings Expectations, and the Exchange-Rate Exposure Effect
The Journal of Finance
Vol. XLIV, No. 5 1994 Eli Bartov
New York University Gordon M. Bodnar
Wharton School, University of Pennsylvania and NBER Abstract Consistent with previous research, we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar. We investigate the possibility this failure is due to mispricing. Lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms, suggesting that misprice does occur. A simple trading strategy based upon these results generates significant abnormal returns. Corroborating evidence from returns around earnings announcements as well as errors in analysis' forecasts of earnings is also provided.
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