Foreign exchange volatility and stock returns

► We examine whether foreign exchange volatility is a priced factor in the US stock market. ► We form a mimicking portfolio based on the sensitivity of individual stock returns to exchange rate volatility. ► We find that foreign exchange volatility cannot explain either the time-series or the cross-section of stock returns. ► We suggest examining the differential effects of the long-run and short-run components of exchange rate volatility on stock returns.