Global Valuation of Firms in a Natural Experiment

On January 15, 2015 following a surprise announcement by the Swiss National Bank, the Swiss franc appreciated more than 15% within 30 minutes. This unexpected and large appreciation of a major currency constitutes a natural experiment to test for foreign exchange exposure of firms. We use 10-minute intra-day data and rank all 20 constituent firms in the Swiss stock market index (SSMI) according to their stock price reaction. The analysis yields a negative effect on average and large variations across firms. Importantly, the average stock price change is smaller in absolute terms than the change in the currency and implies an increased valuation of Swiss firms in foreign currency and positive returns for international investors. The theoretical framework demonstrates that stock price changes in response to FX changes can be exclusively caused by a global valuation effect for multinational firms. It follows that perfectly diversified firms must be exposed to currency changes.