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Unconditional and conditional exchange rate exposure

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  • Chaieb, Ines
  • Mazzotta, Stefano

Abstract

We re-examine the relationship between exchange rate movements and firm value. We estimate the exchange rate exposure of U.S. firms to two currency indices. Firms are clustered into eleven industries. The sample includes exporters and non-exporters. Using a panel approach, we uncover statistically significant and sizable unconditional exposure. We also examine the dynamics of exchange rate exposure modeled as a function of business cycle indicators and firm characteristics. We find that exposure varies over time with macroeconomic and financial variables and increases during economic contractions. Deviations from the unconditional measure of exposure driven by the macroeconomic variables are economically meaningful.

Suggested Citation

  • Chaieb, Ines & Mazzotta, Stefano, 2013. "Unconditional and conditional exchange rate exposure," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 781-808.
  • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:781-808
    DOI: 10.1016/j.jimonfin.2012.07.001
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    Cited by:

    1. Chung, Hyunchul & Majerbi, Basma & Rizeanu, Sorin, 2015. "Exchange risk premia and firm characteristics," Emerging Markets Review, Elsevier, vol. 22(C), pages 96-125.
    2. repec:eee:corfin:v:44:y:2017:i:c:p:48-72 is not listed on IDEAS
    3. Huang, Lin & Wu, Jia & Zhang, Rui, 2014. "Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model," Emerging Markets Review, Elsevier, vol. 21(C), pages 96-116.
    4. Krapl, Alain & O'Brien, Thomas J., 2015. "Direct versus indirect regression estimates of foreign exchange cash flow exposure," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 103-112.
    5. Krapl, Alain & Salyer, Robert, 2017. "The effects of fair value reporting on corporate foreign exchange exposures," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 215-238.
    6. Krapl, Alain & Giaccotto, Carmelo, 2015. "Foreign exchange risk and the term-structure of industry costs of equity," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 71-88.
    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

    Foreign exchange rates; Exposure; Macroeconomic conditions; Business-cycle indicators;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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