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Using survey data to resolve the exchange risk exposure puzzle: Evidence from U.S. multinational firms

  • Jongen, R.
  • Muller, A.
  • Verschoor, W.F.C.

This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of ‘realized’ and ‘unexpected’ currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 2 ()
Pages: 148-169

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:2:p:148-169
DOI: 10.1016/j.jimonfin.2011.10.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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