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Foreign exchange rate exposure: Evidence from Canada

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  • Al-Shboul, Mohammad
  • Anwar, Sajid

Abstract

Using weekly data from 2003 to 2011, this paper examines the presence of exchange rate exposure in thirteen Canadian industry sectors. This study contributes to the literature in a number of ways: (i) it considers the presence of exposure not only in the full sample but also in the pre and post-Global Financial Crisis (GFC) periods, (ii) it considers both linear and nonlinear exposure and (iii) it makes use of the sign and size bias tests to investigate the presence of asymmetric exposure. In general, we find some evidence of linear and nonlinear exposure in the full sample as well as in the pre and post-GFC sub-samples. We also find weak evidence of an asymmetric exposure sign effect on stock returns in the full and pre-GFC sample periods. Stock returns are found to respond asymmetrically to the positive magnitude of exposure in both the-pre and post-GFC sample periods. In overall terms, the GFC appears to have weakly contributed to the overall strength of the exposure.

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  • Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Foreign exchange rate exposure: Evidence from Canada," Review of Financial Economics, Elsevier, vol. 23(1), pages 18-29.
    • Handle: RePEc:eee:revfin:v:23:y:2014:i:1:p:18-29
    DOI: 10.1016/j.rfe.2013.12.001
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    Cited by:

    1. Marko Korhonen, 2015. "The Relation between National Stock Prices and Effective Exchange Rates: Does It Affect Exchange Rate Exposure?," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 15(2), pages 241-256, July.
    2. Augustine C. Arize & John Malindretos & Ikechukwu Ndu & Demetri Tsanacas & Neirouz Watad, 2022. "A Survey of Multinational Company Accounting Foreign Exchange Exposure," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(2), pages 142-149.
    3. Huizinga, Harry, 2016. "How Relevant are the New Elements in the 2016 Stress Test Design?," Other publications TiSEM 66656866-bebb-49dc-a7ca-9, Tilburg University, School of Economics and Management.
    4. Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Pricing of the currency risk in the Canadian equity market," Research in International Business and Finance, Elsevier, vol. 30(C), pages 173-194.
    5. Muhammad Tahir & Haslindar Ibrahim & Abdul Hadi Zulkafli & Muhammad Mushtaq, 2020. "Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 267-290.
    6. Ben Chandia Johnathan, 2023. "Contribution of Corporate Governance Practices on Enhancing Company’s Competitiveness in South Sudan: A Case of Zain Company Limited," International Journal of Science and Business, IJSAB International, vol. 19(1), pages 1-19.
    7. M. A. Adebiyi & M. O. Abeng, 2019. "The Sensitivity of Sector Stock Returns to Exchange Rate Risks in Nigeria," Economic and Financial Review, Central Bank of Nigeria, vol. 57(2), June.
    8. Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market," Economic Modelling, Elsevier, vol. 37(C), pages 451-463.
    9. Augustine C. Arize & John Malindretos & Ikechukwu Ndu & Demetri Tsanacas & Neirouz Watad, 2022. "A Survey of Multinational Company Accounting Foreign Exchange Exposure," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(2), pages 128-135.
    10. Chou, De-Wai & Lin, Lin & Hung, Pi-Hsia & Lin, Chun Heng, 2017. "A revisit to economic exposure of U.S. multinational corporations," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 273-287.
    11. Jaratin Lily & Imbarine Bujang & Abdul Aziz Karia & Mori Kogid, 2018. "Exchange rate exposure revisited in Malaysia: a tale of two measures," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 409-435, December.
    12. Reaz, Md & Mahat, Fauziah & Dahir, Ahmed Mohamed & Sahabuddin, Mohammad & Al Mahi, Abu Saad Md Masnun, 2017. "Exchange rate volatility and financial performance of agriculture firms in Malaysia: An empirical analysis using GARCH, wavelet and system GMM," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(3).
    13. Huang, Qian & Wang, Xiangning & Zhang, Shuguang, 2021. "The effects of exchange rate fluctuations on the stock market and the affecting mechanisms: Evidence from BRICS countries," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    14. Hajra Ihsan & Abdul Rashid & Anam Naz, 2018. "Exchange Rate Exposure and Firm Value: An Assessment of Domestic Versus Multinational Firms," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 51-77, Jan-June.
    15. repec:dau:papers:123456789/15237 is not listed on IDEAS

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    More about this item

    Keywords

    Financial risk; Foreign exchange rate; Nonlinear exposure; Asymmetric exposure; Nonparametric methods;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G01 - Financial Economics - - General - - - Financial Crises
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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