Unremunerated reserve requirements, exchange rate volatility, and firm value
AbstractIn this paper we investigate whether the imposition of the unremunerated reserve requirement on capital inflows influences exchange rate volatility and stock prices. Our analysis shows that exchange rate volatility of the Thai baht against four major currencies—the US dollar, the British pound, the euro, and the Japanese yen—appears to be larger during the period of the imposition of the unremunerated reserve requirement in 2006–2007. Using a data set of publicly traded firms in Thailand, we find that the exposure of firms to exchange rate volatility appears to change during the unremunerated reserve requirement period relative to the pre- and post-unremunerated reserve requirement period. We also find that the effect of exchange rate volatility during the unremunerated reserve requirement period on stock returns is stronger for some firms than others. The results suggest that the unremunerated reserve requirement affects asset prices, through larger exchange rate volatility and through changes in exposure of firms to exchange rate volatility.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 23 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/intfin
Exchange rate; Exchange rate volatility; Stock return; Unremunerated reserve requirement; Thailand;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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