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The response of industry stock returns to market, exchange rate and interest rate risks

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  • Hyde, Stuart J

Abstract

This study investigates the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy and the UK. In addition to exposure to the market, significant levels of exposure to both exchange rate risk, in the four countries, and interest rate risk, in France and Germany, are identified. Further, responses to sources of risk are decomposed into components attributable to news about future dividends, real interest rates and excess returns. All three sources of risk contain significant information about future cash flows and excess returns.

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File URL: http://mpra.ub.uni-muenchen.de/9679/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9679.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:9679

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Keywords: Exchange rate exposure; interest rate risk; stock returns;

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References

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  1. Campbell, John, 1991. "A Variance Decomposition for Stock Returns," Scholarly Articles 3207695, Harvard University Department of Economics.
  2. Campbell, John Y. & Mei, Jianping, 1993. "Where Do Betas Come From? Asset Price Dynamics and the Sources of Systematic Risk," Scholarly Articles 3353757, Harvard University Department of Economics.
  3. Burmeister, Edwin & McElroy, Marjorie B, 1988. " Joint Estimation of Factor Sensitivities and Risk Premia for the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, American Finance Association, vol. 43(3), pages 721-33, July.
  4. Ahmed A. El-Masry, 2004. "The Exchange Rate Exposure of UK Nonfinancial Companies: Industry-Level Analysis," International Finance, EconWPA 0401001, EconWPA.
  5. 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, Elsevier, vol. 12(1), pages 29-45, February.
  6. Kiymaz, Halil, 2003. "Estimation of foreign exchange exposure: an emerging market application," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 13(1), pages 71-84, February.
  7. Jongmoo Choi & Elyas Elyasiani, 1997. "Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks," Journal of Financial Services Research, Springer, Springer, vol. 12(2), pages 267-286, October.
  8. Jia He & Lilian K. Ng, 1998. "The Foreign Exchange Exposure of Japanese Multinational Corporations," Journal of Finance, American Finance Association, American Finance Association, vol. 53(2), pages 733-753, 04.
  9. Khoo, Andrew, 1994. "Estimation of foreign exchange exposure: an application to mining companies in Australia," Journal of International Money and Finance, Elsevier, Elsevier, vol. 13(3), pages 342-363, June.
  10. Jorion, Philippe, 1991. "The Pricing of Exchange Rate Risk in the Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 26(03), pages 363-376, September.
  11. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
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Cited by:
  1. Román Ferrer & Cristóbal González & Gloria M. Soto, 2010. "Linear and nonlinear interest rate exposure in Spain," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 36(5), pages 431-451, May.
  2. Nikolaos SARIANNIDIS & Grigoris GIANNARAKIS & Nicolaos LITINAS & George KONTEOS, 2010. "Á GARCH Examination of Macroeconomic Effects on U.S. Stock Market: A Distinction Between the Total Market Index and the Sustainability Index," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 129-142.
  3. Subhani, Muhammad Imtiaz & Hasan, Syed Akif & Osman, Ms. Amber, 2012. "An Application of GARCH while investigating volatility in stock returns of the World," MPRA Paper 45089, University Library of Munich, Germany.
  4. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "Some thoughts on accurate characterization of stock market indexes trends in conditions of nonlinear capital flows during electronic trading at stock exchanges in global capital markets," MPRA Paper 49921, University Library of Munich, Germany.

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