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The foreign exchange exposure of UK non-financial firms: A comparison of market-based methodologies

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  • Agyei-Ampomah, Sam
  • Mazouz, Khelifa
  • Yin, Shuxing

Abstract

We use a sample of 269 UK non-financial firms to study the sensitivity of foreign exchange exposure, and its determinants, to the different estimation methods. The standard Jorion's model suggests that 14.93% (30.50%) of the firms in our sample are exposed directly or indirectly to the fluctuations in the TWC (the US$, the Euro or the JP¥). However, the exposure increases substantially to 85.13% (96.65%) when time varying exposure regressions with orthogonalized market returns are used. We also show that the determinants of currency exposure are model-dependent. While the cross-sectional results suggest very little or no relationship between firm-specific factors and currency exposure, the explanatory power of these factors increase when data is pooled across firms and time.

Suggested Citation

  • Agyei-Ampomah, Sam & Mazouz, Khelifa & Yin, Shuxing, 2013. "The foreign exchange exposure of UK non-financial firms: A comparison of market-based methodologies," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 251-260.
  • Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:251-260
    DOI: 10.1016/j.irfa.2012.05.006
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    References listed on IDEAS

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    Cited by:

    1. Jana Šimáková, 2018. "The Study of the Effects of Exchange Rates on the Stock Companies in the Eurozone's Petrochemical Industry," Working Papers 0053, Silesian University, School of Business Administration.
    2. Jana Šimáková & Nikola Rusková, 2017. "Role of the Exchange Rates in the Stock Price Development of Companies in Chemical Industry," Working Papers 0042, Silesian University, School of Business Administration.
    3. repec:ers:ijebaa:v:vi:y:2018:i:1:p:54-60 is not listed on IDEAS
    4. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.
    5. Lestano, Lestano, 2015. "Asymmetric Exchange Rate Exposure in Indonesian Industry Sectors," MPRA Paper 64357, University Library of Munich, Germany.

    More about this item

    Keywords

    Foreign exchange exposure; Currency risk; Panel estimation;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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