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Exchange Rate Exposure : International Evidence from Daily Firm-Level Data

Author

Listed:
  • Jeon, Bang Nam

    (Drexel University)

  • Zheng, Dazhi

    (West Chester University of Pennsylvania)

  • Zhu, Lei

    (West Chester University of Pennsylvania)

Abstract

This paper examines impact of changes in the foreign exchange rate on firms’ stock returns in global markets. Using daily firm-level data for 14 international markets from January 2000 to December 2011, we find evidence that changes in the trade-weighted multilateral exchange rate systematically impact individual firms’ stock returns for all seven emerging markets and some advanced economies. Controlling for price factors such as market risk premium, Fama-French factors, the momentum, and the liquidity factor, we correct the upward bias of the estimation. Stocks in export-oriented economies are shown to considerably benefit from local currency depreciation. Further, in emerging markets, exchange rate movements affect larger firms with more intense global connections, but in advanced markets, they affect smaller firms with limited access to hedging to a larger extent. Long-run equilibrium relationships between stock markets and foreign exchange markets become stronger since the global financial crisis of 2008~2009.

Suggested Citation

  • Jeon, Bang Nam & Zheng, Dazhi & Zhu, Lei, 2017. "Exchange Rate Exposure : International Evidence from Daily Firm-Level Data," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 32(1), pages 112-159.
    • Handle: RePEc:ris:integr:0709
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    Citations

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    Cited by:

    1. Oh, Jeong Hun, 2018. "The Foreign Exchange Market With the Cryptocurrency and "Kimchi Premium"," 22nd ITS Biennial Conference, Seoul 2018. Beyond the boundaries: Challenges for business, policy and society 190386, International Telecommunications Society (ITS).
    2. Jaratin Lily & Imbarine Bujang & Abdul Aziz Karia & Mori Kogid, 2018. "Exchange rate exposure revisited in Malaysia: a tale of two measures," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 409-435, December.

    More about this item

    Keywords

    Exchange Rate Exposure; International Stock Markets; Emerging Markets;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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