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.
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.