IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v94y2019icp32-47.html
   My bibliography  Save this article

The response of multinationals’ foreign exchange rate exposure to macroeconomic news

Author

Listed:
  • Boudt, Kris
  • Neely, Christopher J.
  • Sercu, Piet
  • Wauters, Marjan

Abstract

We use intraday data to estimate the daily foreign exchange exposure of U.S. multinationals and show that macroeconomic news affects these firms’ foreign exchange exposure. News creates a substantial shift in the joint distribution of stock and exchange rate returns that has both a transitory and a persistent component. For example, a positive domestic demand surprise, as reflected in higher-than-expected nonfarm payroll, increases the value of the low-exposure domestic activities and results in a persistent decrease in foreign exchange exposure.

Suggested Citation

  • Boudt, Kris & Neely, Christopher J. & Sercu, Piet & Wauters, Marjan, 2019. "The response of multinationals’ foreign exchange rate exposure to macroeconomic news," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 32-47.
    • Handle: RePEc:eee:jimfin:v:94:y:2019:i:c:p:32-47
    DOI: 10.1016/j.jimonfin.2019.01.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560619300506
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jimonfin.2019.01.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Francis, Bill B. & Hasan, Iftekhar & Hunter, Delroy M., 2008. "Can hedging tell the full story? Reconciling differences in United States aggregate- and industry-level exchange rate risk premium," Journal of Financial Economics, Elsevier, vol. 90(2), pages 169-196, November.
    2. Andrew J. Patton & Michela Verardo, 2012. "Does Beta Move with News? Firm-Specific Information Flows and Learning about Profitability," The Review of Financial Studies, Society for Financial Studies, vol. 25(9), pages 2789-2839.
    3. Koutmos, Gregory & Martin, Anna D., 2007. "Modeling time variation and asymmetry in foreign exchange exposure," Journal of Multinational Financial Management, Elsevier, vol. 17(1), pages 61-74, February.
    4. Bauer, Michael D. & Neely, Christopher J., 2014. "International channels of the Fed's unconventional monetary policy," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 24-46.
    5. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages 447-466, November.
    6. Gordon M. Bodnar & Bernard Dumas & Richard C. Marston, 2002. "Pass‐through and Exposure," Journal of Finance, American Finance Association, vol. 57(1), pages 199-231, February.
    7. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    8. Bartram, Sohnke M., 2004. "Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations," Journal of International Money and Finance, Elsevier, vol. 23(4), pages 673-699, June.
    9. Chaieb, Ines & Mazzotta, Stefano, 2013. "Unconditional and conditional exchange rate exposure," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 781-808.
    10. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January.
    11. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    12. Dewachter, Hans & Erdemlioglu, Deniz & Gnabo, Jean-Yves & Lecourt, Christelle, 2014. "The intra-day impact of communication on euro-dollar volatility and jumps," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 131-154.
    13. Gao, Ting, 2000. "Exchange rate movements and the profitability of U.S. multinationals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 117-134, February.
    14. Michael T. Kiley, 2014. "The Response of Equity Prices to Movements in Long‐Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(5), pages 1057-1071, August.
    15. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 523-543, December.
    16. John H. Boyd & Jian Hu & Ravi Jagannathan, 2005. "The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks," Journal of Finance, American Finance Association, vol. 60(2), pages 649-672, April.
    17. Martin Glaum & Marko Brunner & Holger Himmel, 2000. "The DAX and the Dollar: The Economic Exchange Rate Exposure of German Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 31(4), pages 715-724, December.
    18. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    19. Allayannis, George & Ofek, Eli, 2001. "Exchange rate exposure, hedging, and the use of foreign currency derivatives," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 273-296, April.
    20. Leland L. Johnson, 1960. "The Theory of Hedging and Speculation in Commodity Futures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 27(3), pages 139-151.
    21. Mun, Kyung-Chun, 2012. "The joint response of stock and foreign exchange markets to macroeconomic surprises: Using US and Japanese data," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 383-394.
    22. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    23. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2011. "Jumps, cojumps and macro announcements," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 893-921, September.
    24. Dumas, B, 1978. "The Theory of the Trading Firm Revisited," Journal of Finance, American Finance Association, vol. 33(3), pages 1019-1030, June.
    25. Muller, Aline & Verschoor, Willem F.C., 2006. "Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 495-518, October.
    26. Bartram, Söhnke M. & Bodnar, Gordon M., 2012. "Crossing the lines: The conditional relation between exchange rate exposure and stock returns in emerging and developed markets," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 766-792.
    27. S. Rubun Dey & Christopher J. Neely, 2010. "A survey of announcement effects on foreign exchange returns," Review, Federal Reserve Bank of St. Louis, vol. 92(Sep), pages 417-464.
    28. repec:bla:jfinan:v:53:y:1998:i:2:p:733-753 is not listed on IDEAS
    29. Allayannis, George & Ihrig, Jane, 2001. "Exposure and Markups," The Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 805-835.
    30. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-345, July.
    31. Shapiro, Alan C, 1975. "Exchange Rate Changes, Inflation, and the Value of the Multinational Corporation," Journal of Finance, American Finance Association, vol. 30(2), pages 485-502, May.
    32. Gordon M. Bodnar & M.H. Franco Wong, 2003. "Estimating Exchange Rate Exposures: Issues in Model Structure," Financial Management, Financial Management Association, vol. 32(1), Spring.
    33. Marston, Richard C., 2001. "The effects of industry structure on economic exposure," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 149-164, April.
    34. Liu, Fang & Sercu, Piet & Vandebroek, Martina, 2015. "Orthogonalized regressors and spurious precision, with an application to currency exposures," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 245-263.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yi-Chen Chung & Hsien-Ming Chou & Chih-Neng Hung & Chihli Hung, 2021. "Using Textual and Economic Features to Predict the RMB Exchange Rate," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(6), pages 1-8.
    2. Sikarwar, Ekta, 2020. "Forex interventions and exchange rate exposure: Evidence from emerging market firms," Economic Modelling, Elsevier, vol. 93(C), pages 69-81.
    3. Munazza Jabeen & Abdul Rashid & Hajra Ihsan, 2022. "The news effects on exchange rate returns and volatility: Evidence from Pakistan," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 745-769, January.
    4. Syed Faisal Hasssan Bukhari & Waqar Yasir & Christian Espinosa Méndez & Zia Mustafa, 2023. "Sectoral Comparison of Herding During Global Financial Crisis and Covid-19: Comparative Analysis of Shariah Compliant and Conventional Stocks," Journal of Economic Impact, Science Impact Publishers, vol. 5(3), pages 202-210.
    5. Yu Ma & Xinqian Du, 2022. "Exchange rate factors, income levels, and investment abroad: An empirical study based on a sample of emerging economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1711-1730, April.
    6. Fuchs, Fabian U., 2022. "Macroeconomic determinants of foreign exchange rate exposure," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 77-102.
    7. Sikarwar, Ekta, 2022. "Board attributes, hedging activities and exchange rate risk: Multi-country firm-level evidence," Economic Modelling, Elsevier, vol. 110(C).
    8. Munazza Jabeen & Abdul Rashid, 2022. "Macroeconomic News and Exchange Rates: Exploring the Role of Order Flow," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(2), pages 222-245, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
    2. Krapl, Alain A., 2017. "Asymmetric foreign exchange cash flow exposure: A firm-level analysis," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 48-72.
    3. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette A., 2010. "Resolving the exposure puzzle: The many facets of exchange rate exposure," Journal of Financial Economics, Elsevier, vol. 95(2), pages 148-173, February.
    4. Chaieb, Ines & Mazzotta, Stefano, 2013. "Unconditional and conditional exchange rate exposure," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 781-808.
    5. Belghitar, Yacine & Clark, Ephraim & Dropsy, Vincent & Mefteh-Wali, Salma, 2021. "The effect of exchange rate fluctuations on the performance of small and medium sized enterprises: Implications for Brexit," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 399-410.
    6. Fuchs, Fabian U., 2022. "Macroeconomic determinants of foreign exchange rate exposure," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 77-102.
    7. Fuchs, Fabian U., 2020. "Macroeconomic determinants of foreign exchange rate exposure," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-42-20, University of Passau, Faculty of Business and Economics.
    8. Lestano, Lestano, 2015. "Asymmetric Exchange Rate Exposure in Indonesian Industry Sectors," MPRA Paper 64357, University Library of Munich, Germany.
    9. 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.
    10. Belghitar, Yacine & Clark, Ephraim & Mefteh, Salma, 2013. "Foreign currency derivative use and shareholder value," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 283-293.
    11. Bartram, Söhnke M. & Bodnar, Gordon, 2005. "The Exchange Rate Exposure Puzzle," MPRA Paper 6482, University Library of Munich, Germany.
    12. 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.
    13. Krapl, Alain A., 2020. "The time-varying diversifiability of corporate foreign exchange exposure," Journal of Corporate Finance, Elsevier, vol. 65(C).
    14. Sunghee Choi & Md. Abdus Salam & Ki-Dong Lee, 2019. "The Nature of Exchange Rate Movements and Exchange Rate Exposure: The Bangladesh Case," Journal of South Asian Development, , vol. 14(2), pages 180-222, August.
    15. Ekta Sikarwar & Ganesh Kumar Nidugala, 2018. "Effect of Central Bank Intervention in Estimating Exchange Rate Exposure: Evidence from an Emerging Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1), pages 60-95, April.
    16. Alain Krapl & Thomas J. O'Brien, 2014. "A comparison of FX exposure estimates with different control variables," Applied Financial Economics, Taylor & Francis Journals, vol. 24(6), pages 437-451, March.
    17. Andrikopoulos, Athanasios & Dassiou, Xeni & Zheng, Min, 2020. "Exchange-rate exposure and Brexit: The case of FTSE, DAX and IBEX," International Review of Financial Analysis, Elsevier, vol. 68(C).
    18. Júnior, José L. R., 2008. "Exchange Rate Exposure, Foreign Currency Debt and the Use of Derivatives: Evidence from Brazil," Insper Working Papers wpe_141, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    19. Horst Entorf & Gösta Jamin, 2007. "German Exchange Rate Exposure at DAX and Aggregate Levels, International Trade and the Role of Exchange Rate Adjustment Costs," German Economic Review, Verein für Socialpolitik, vol. 8(3), pages 344-374, August.
    20. 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.

    More about this item

    Keywords

    Foreign exchange exposure; High-frequency data; Macro;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:94:y:2019:i:c:p:32-47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.