How important is global industry shock in explaining the relative performance of global industries?
Purpose - The purpose of this paper is to examine the effects of exchange rate and global industry shocks on the relative performance of global industries. Design/methodology/approach - In addition to SUR approach, we also use GARCH approach to control for heteroskedasticity. Findings - Using industry data from Japan and the USA, the authors find that although both exchange rate and global industry shocks are statistically significant in explaining the performance of these industries relative to their domestic markets, economically the global industry shock plays the major role in determining this performance. Research limitations/implications - The authors' findings are only based on two countries, the USA and Japan, so future researchers can use the authors' empirical models to test if their results hold using data from other countries. Practical implications - Investors should focus more on the performance of global industries instead of exchange rate changes when creating their portfolios. Originality/value - Our empirical results may explain the poor performance of the regression models in Griffin and Stulz ten years ago where they fail to control for the global industry shock.
Volume (Year): 37 (2011)
Issue (Month): 5 (April)
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- Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
- Jia He & Lilian K. Ng, 1998. "The Foreign Exchange Exposure of Japanese Multinational Corporations," Journal of Finance, American Finance Association, vol. 53(2), pages 733-753, 04.
- 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.
- Jorion, Philippe, 1991. "The Pricing of Exchange Rate Risk in the Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 363-376, September.
- Griffin, John M & Stulz, Rene M, 2001.
"International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns,"
Review of Financial Studies,
Society for Financial Studies, vol. 14(1), pages 215-241.
- John M. Griffin & Rene M. Stulz, 1997. "International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns," NBER Working Papers 6243, National Bureau of Economic Research, Inc.
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