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A Re-Examination of Exchange Rate Exposure

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Author Info
Kathryn M.E. Dominguez
Linda L. Tesar

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Abstract

Finance theory suggests that changes in exchange rates should have little influence on asset prices in a world that has become increasingly with integrated capital markets. Indeed, the existing literature examining the relationship between international stock prices and exchange rates finds little evidence of systematic exchange rate exposure. We argue in this paper that the absence of evidence may be due to restrictions imposed on the sample of data and the empirical specifications used in previous studies. We study a broad sample of firms in eight countries over an eighteen-year period. We find that firm-level and industry-level share values are significantly influenced by exchange rates. Further, we do not find evidence that exchange rate exposure is falling (or becoming less statistically significant) over time. Our results suggest that significant firm, industry and country-specific differences remain even as financial markets become more and more 'integrated'.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8128.

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Date of creation: Feb 2001
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Handle: RePEc:nbr:nberwo:8128

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July. [Downloadable!] (restricted)
  2. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January. [Downloadable!] (restricted)
    Other versions:
  3. Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February. [Downloadable!] (restricted)
  4. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, vol. 38(3-4), pages 297-320, May. [Downloadable!] (restricted)
    Other versions:
  5. Gordon M. Bodnar & M.H. Franco Wong, 2000. "Estimating Exchange Rate Exposures: Some "Weighty" Issues," NBER Working Papers 7497, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Jia He & Lilian K. Ng, 1998. "The Foreign Exchange Exposure of Japanese Multinational Corporations," Journal of Finance, American Finance Association, vol. 53(2), pages 733-753, 04. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kathryn M. E. Dominguez & Linda L. Tesar, 2001. "Trade and Exposure," American Economic Review, American Economic Association, vol. 91(2), pages 367-370, May. [Downloadable!] (restricted)
    Other versions:
  2. Jesús Muñoz & P. Nicholas Snowden, 2006. "Floating without flotations-the exchange rate and the Mexican stock market: 1995-2001," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(3), pages 299-318. [Downloadable!]
  3. Kathryn M.E. Dominguez & Linda L. Tesar, 2001. "Exchange Rate Exposure," NBER Working Papers 8453, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Felipe G. Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers Central Bank of Chile 152, Central Bank of Chile. [Downloadable!]
  5. Tong, Hui & Wei, Shang-Jin, 2009. "The Misfortune of Non-financial Firms in a Financial Crisis: Disentangling Finance and Demand Shocks," CEPR Discussion Papers 7208, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Jose Berrospide, 2008. "Exchange rates, optimal debt composition, and hedging in small open economies," Finance and Economics Discussion Series 2008-18, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Heajin Ryoo & Robert Dekle, 2004. "Exchange Rate Fluctuations, Financing Constraints, Hedging, and Exports: Evidence from Firm Level Data," Econometric Society 2004 North American Winter Meetings 20, Econometric Society. [Downloadable!]
    Other versions:
  8. Uluc Aysun & Melanie Guldi, 2008. "Increasing Derivatives Market Activity in Emerging Markets and Exchange Rate Exposure," Working papers 2008-06, University of Connecticut, Department of Economics, revised Oct 2008. [Downloadable!]
  9. Hui Tong & Shang-Jin Wei, 2008. "Real Effects of the Subprime Mortgage Crisis: Is it a Demand or a Finance Shock?," NBER Working Papers 14205, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette, 2009. "Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure," MPRA Paper 14041, University Library of Munich, Germany. [Downloadable!]
  11. Horst Entorf & Gösta Jamin, 2002. "Dance with the Dollar: Exchange Rate Exposure on the German Stock Market," Darmstadt Discussion Papers in Economics 117, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
  12. David Parsley Helen Popper, 2002. "Exchange Rate Pegs and Foreign Exchange Exposure in East Asia," International Finance 0211001, EconWPA. [Downloadable!]
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