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Exchange rate exposure: A nonparametric approach

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  • Aysun, Uluc
  • Guldi, Melanie

Abstract

The typical conclusion reached when researchers examine exchange rate exposure is that only a few firms are exposed. This finding is puzzling since institutional knowledge and theory suggests a larger effect. In this paper, we compare results obtained using a linear approach with those from nonlinear and nonparametric models. Among firms that don't have a linear exposure, we find that a considerable proportion of these are exposed when nonlinear or nonparametric models are used. This exposure is most striking when a nonparametric model is used. We also find that firms' hedging activities decrease linear exposure but don't affect nonparametric exposure.

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  • Aysun, Uluc & Guldi, Melanie, 2011. "Exchange rate exposure: A nonparametric approach," Emerging Markets Review, Elsevier, vol. 12(4), pages 321-337.
  • Handle: RePEc:eee:ememar:v:12:y:2011:i:4:p:321-337
    DOI: 10.1016/j.ememar.2011.05.002
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    Cited by:

    1. Coutinho, João Ricardo Ribeiro & Sheng, Hsia Hua & Lora, Mayra Ivanoff, 2012. "The use of Fx derivatives and the cost of capital: Evidence of Brazilian companies," Emerging Markets Review, Elsevier, vol. 13(4), pages 411-423.
    2. Chung, Hyunchul & Majerbi, Basma & Rizeanu, Sorin, 2015. "Exchange risk premia and firm characteristics," Emerging Markets Review, Elsevier, vol. 22(C), pages 96-125.
    3. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    4. Kodongo, Odongo & Ojah, Kalu, 2014. "The conditional pricing of currency and inflation risks in Africa's equity markets," MPRA Paper 56100, University Library of Munich, Germany.
    5. Mojisola Olugbode & Ahmed El-Masry & John Pointon, 2014. "Exchange Rate and Interest Rate Exposure of UK Industries Using First-order Autoregressive Exponential GARCH-in-mean (EGARCH-M) Approach," Manchester School, University of Manchester, vol. 82(4), pages 409-464, July.
    6. Kodongo, Odongo & Ojah, Kalu, 2014. "Conditional pricing of currency risk in Africa's equity markets," Emerging Markets Review, Elsevier, vol. 21(C), pages 133-155.
    7. Lestano, Lestano, 2015. "Asymmetric Exchange Rate Exposure in Indonesian Industry Sectors," MPRA Paper 64357, University Library of Munich, Germany.

    More about this item

    Keywords

    Nonparametric; Exchange rate exposure; Hedging; S&P 500; Emerging markets;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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