This paper investigates stock returns for a large cross section of Eurozone corporations during 2000-2019 through various asset-pricing models. First, we compute Eurozone-specific factors to discuss the size, value, profitability, momentum, and investment effects of stock returns. Subsequently, the paper expands widely-used asset pricing models by introducing a foreign exchange risk factor to evaluate whether foreign currency risk is priced systematically in Eurozone stock returns. The results confirm the importance of various factors used previously by asset-pricing models. Moreover, we find strong evidence for the pricing of foreign currency risk in Eurozone stock returns. We employ panel regressions, factor spanning regressions, asset-pricing tests, and several evaluation metrics to derive and assess our findings.
Date: 26 November 2021