How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?Presented by Rüdiger Fahlenbrach, Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute
We examine the impact of a sudden home currency appreciation on the valuation and behavior of corporations in a developed economy. The Swiss National Bank surprisingly repealed the minimum exchange rate of 1.2 Swiss francs per Euro on January 15, 2015. On that day the franc appreciated by 15% and the main stock market index dropped by 8.7%. The impact was largest for export oriented firms with high domestic costs. These firms experienced 5% lower announcement returns, subsequently faced economically sizeable reductions in sales and profitability, and responded by reducing investment by 8.1% while only slightly reducing employment.