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Exchange rate exposure of stock returns at firm level

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Author Info

  • Gamini Premaratne

    (NUS)

  • Prabhath Jayasinghe

    (NUS)

Abstract

The use of conventional augmented CAPM specification in estimating the exchange rate exposure may result in less reliable estimates for, at least, two reasons. First, it does not take into account a few important stylized facts associated with financial time series. Second, one cannot estimate the total impact of the exchange rate changes on stock returns as a single coefficient with it and for this reason it does not help us analyze the reinforcing or offsetting interactions between direct and indirect exchange rate exposure effects. In this paper, we suggest an orthogonalized GJR-GARCH-t version of augmented CAPM that simultaneously addresses the above issues. Our findings have important implications for hedging and investment decision making.

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File URL: http://128.118.178.162/eps/if/papers/0503/0503004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0503004.

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Length: 40 pages
Date of creation: 11 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0503004

Note: Type of Document - pdf; pages: 40
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Web page: http://128.118.178.162

Related research

Keywords: Exchange rate exposure; GARCH; t distribution; Asymmetric volatility;

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References

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Cited by:
  1. Horst Entorf & Gösta Jamin, 2007. "German Exchange Rate Exposure at DAX and Aggregate Levels, International Trade and the Role of Exchange Rate Adjustment Costs," German Economic Review, Verein für Socialpolitik, vol. 8, pages 344-374, 08.

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