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The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APT-modelling

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  • Entorf, Horst
  • Jamin, Gösta

Abstract

We estimate the impact of dollar changes on the value of German DAX corporations, using APT-modelling for the period 1977 - 1995. Several macroeconomic risk factors, including the dollar and a residual market factor representing the general market risk, are specified. The general notion is that the export-oriented German companies should benefit from increasing dollar values. We find time-varying dollar exposure presumably depending on the prevailing trade regime. Dollar sensitivity is positive as expected in periods with a positive trade balance, whereas it turns negative in periods with a negative trade balance (e.g., in the first half of the 1980s). APT-modelling simultaneously considers exchange rate exposure and risk-premia of macroeconomic risk factors, the latter also being unstable over time.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 20146.

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Date of creation: Dec 2003
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Publication status: Published in Darmstadt Discussion Papers in Economics . 127 (2003-12)
Handle: RePEc:dar:ddpeco:20146

Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/20146/
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  1. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  2. Sohnke M. Bartram, 2002. "Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations," Finance 0207001, EconWPA.
  3. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
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