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Emerging market exchange rate exposure

  • Chue, Timothy K.
  • Cook, David

We estimate the exposure of emerging market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange rate movements, yet abstracts from the influence of confounding macroeconomic shocks. In the sub-period of 1999-2002, we find that depreciations tend to have a negative impact on emerging market stock returns. In the sub-period of 2002-2006, this tendency has largely disappeared. Since we estimate the exchange rate exposure of firms from different countries with a common set of instruments, we can make coherent, cross-country comparisons of their determinants. We find that the impact of various measures of debt on exchange rate exposure, which is negative and significant in the early sub-period, becomes insignificant and even reverses sign in the recent sub-period.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 7 (July)
Pages: 1349-1362

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:7:p:1349-1362
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