Exchange rate changes and ESG

Predicting exchange rate changes using country environmental, social, and governance ratings.

New research has looked at the ability of country ESG ratings to predict future one-year and two-year exchange rate changes. Using annual MSCI ESG government ratings from 2008 to 2018 for forty-two countries, the research found a significant relationship between a country’s ESG ratings and the future change in the local currency. Countries with high ESG ratings have significantly better-performing currencies than countries with lower ESG ratings.

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By Edward Baker, Mesirow Financial Investment Management; Marcus V. Braga-Alves, Pace University, Lubin School of Business and Matthew R. Morey, Pace University, Lubin School of Business – Department of Finance and Economics.