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On The Exchange Rate Risk Contribution To The Performance Of International Investments: The Case Of Romania

  • Alexandra HOROBET

    ()

    (Academy of Economic Studies Bucharest)

  • Livia ILIE

    ()

    (University Lucian Blaga of Sibiu)

The paper examines the impact of changes in the Romanian currency exchange rates against the US dollar and the euro on an investment in the Romanian stock market from the perspective of a US dollar and euro based investor. Our analysis is directed towards identifying the significance of exchange rate volatility for the total risk of a Romanian investment from the perspective of investors with the US dollar and euro as reference currencies. Our results indicate that during more turbulent times investors were better off if invested in their home markets. We also find that the exchange rate risk decreased the risk that a US dollar or a euro-based investor was exposed to in Romania. The contribution of exchange rate risk to the risk of an international investor diversified in his home market and the Romanian market is small, even negative, with no significant differences turbulent versus normal times.

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Article provided by Alexandru Ioan Cuza University, Faculty of Economics and Business Administration in its journal Review of Economic and Business Studies.

Volume (Year): (2009)
Issue (Month): 3 (May)
Pages: 57-83

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Handle: RePEc:aic:revebs:y:2009:i:3:horobeta
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  1. Levy, Haim & Lim, Kok Chew, 1994. "Forward exchange bias, hedging and the gains from international diversification of investment portfolios," Journal of International Money and Finance, Elsevier, vol. 13(2), pages 159-170, April.
  2. Alberto Giovannini & Philippe Jorion, 1988. "The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets," NBER Working Papers 2573, National Bureau of Economic Research, Inc.
  3. 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.
  4. Campbell R. Harvey & Bruno Solnik & Guofu Zhou, 2002. "What Determines Expected International Asset Returns?," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 249-298, November.
  5. repec:cup:cbooks:9780521064330 is not listed on IDEAS
  6. Nahum Biger, 1979. "Exchange Risk Implications of International Portfolio Diversification," Journal of International Business Studies, Palgrave Macmillan, vol. 10(2), pages 63-74, June.
  7. Alexandra HOROBET & Sorin DUMITRESCU, 2008. "Insights Into Central And Eastern European Countries Competitiveness: On The Exposure Of Capital Markets To Exchange Rate Risk," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 2, pages 107-125, November.
  8. Gao, Ting, 2000. "Exchange rate movements and the profitability of U.S. multinationals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 117-134, February.
  9. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-78, July.
  10. Bugàr, Gyöngyi & Maurer, Raimond, 2001. "International Equity Portfolios and Currency Hedging: The Viewpoint of German and Hungarian Investors," Sonderforschungsbereich 504 Publications 01-10, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  11. Alexandra Horobet & Livia Ilie, 2007. "Real Exchange Rates And Stock Prices: Insights Into The Competitiveness Of Romanian Economy," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 2(2), pages 30-40, October.
  12. Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313.
  13. Bartov, Eli & Bodnar, Gordon M, 1994. " Firm Valuation, Earnings Expectations, and the Exchange-Rate Exposure Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1755-85, December.
  14. Kenneth A. Froot, 1993. "Currency Hedging over Long Horizons," NBER Working Papers 4355, National Bureau of Economic Research, Inc.
  15. 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.
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