Exchange Rate Risk Exposure and the Value of European Firms
AbstractWe investigate the exposure of European firms to unexpected exchange rate changes of the Euro against currencies of Europe’s main trade partners: the USA, UK, and Japan. Using monthly data for the period from 1999 to 2011 and accounting for underlying macroeconomic fundamentals, the analysis covers 600 firms - constituents of the Euro Stoxx TMI and the Euro Stoxx 50. The large number of firms in the sample furthers the insight of how firms’ characteristics, that is the level of international involvement, country of origin, industry and firm size associate with the exposure to exchange risks. Among the currency pairs analyzed the Yen is shown to have the highest impact on the market value of European firms, with the largest effect on firms in the financial sector. Moreover, the impact is greater for non exporters and large capitalization firms. The relationship between firms’ sensitivities to market and exchange rate fluctuations is explored.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 2012-09.
Length: 38 pages
Date of creation: 20 Nov 2012
Date of revision: 20 Nov 2012
Publication status: Published by the University of Tasmania. Discussion paper 2012-09
Exchange rate risk exposure; unexpected exchange rate changes; market and currency beta interdependence; European firms;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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.:
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
- Roger Koenker & Kevin F. Hallock, 2001.
Journal of Economic Perspectives,
American Economic Association, vol. 15(4), pages 143-156, Fall.
- MArdi Dungey & Renee Fry & Brenda Gonzales-Hermosillo & Vance L. Martin & Chrismin Tang, 2008.
"Are Financial Crises Alike?,"
CAMA Working Papers
2008-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Priestley, Richard & Odegaard, Bernt Arne, 2007. "Linear and nonlinear exchange rate exposure," Journal of International Money and Finance, Elsevier, vol. 26(6), pages 1016-1037, October.
- Fry, RenÃ©e & Martin, Vance L. & Tang, Chrismin, 2010. "A New Class of Tests of Contagion With Applications," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(3), pages 423-437.
- 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.
- Choi, Jongmoo Jay & Jiang, Cao, 2009. "Does multinationality matter? Implications of operational hedging for the exchange risk exposure," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1973-1982, November.
- Dick Davies & Christian Eckberg & Andrew Marshall, 2006. "The determinants of Norwegian exporters' foreign exchange risk management," The European Journal of Finance, Taylor & Francis Journals, vol. 12(3), pages 217-240.
- Bartram, Sohnke M. & Karolyi, G. Andrew, 2004.
"The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures,"
Working Paper Series
2005-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Bartram, Sohnke M. & Karolyi, G. Andrew, 2006. "The impact of the introduction of the Euro on foreign exchange rate risk exposures," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 519-549, October.
- Sohnke M. Bartram & G. Andrew Karolyi, 2002. "The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures," Finance 0207005, EconWPA, revised 16 Sep 2002.
- Gordon M. Bodnar & M.H. Franco Wong, 2003. "Estimating Exchange Rate Exposures: Issues in Model Structure," Financial Management, Financial Management Association, vol. 32(1), Spring.
- Kent D Miller & Jeffrey J Reuer, 1998. "Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 493-513, September.
- Nguyen, Hoa & Faff, Robert & Marshall, Andrew, 2007. "Exchange rate exposure, foreign currency derivatives and the introduction of the euro: French evidence," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 563-577.
- Hamao, Yasushi, 1988. "An empirical examination of the Arbitrage Pricing Theory : Using Japanese data," Japan and the World Economy, Elsevier, vol. 1(1), pages 45-61, October.
- 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.
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
- Aline Muller & Willem F. C. Verschoor, 2006. "European Foreign Exchange Risk Exposure," European Financial Management, European Financial Management Association, vol. 12(2), pages 195-220.
- Kiymaz, Halil, 2003. "Estimation of foreign exchange exposure: an emerging market application," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 71-84, February.
- Hutson, Elaine & O'Driscoll, Anthony, 2010. "Firm-level exchange rate exposure in the Eurozone," International Business Review, Elsevier, vol. 19(5), pages 468-478, October.
- Gregory Koutmos & Johan Knif, 2011. "Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland," The European Journal of Finance, Taylor & Francis Journals, vol. 17(8), pages 661-674.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Derek Rowlands).
If references are entirely missing, you can add them using this form.