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Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland

Author

Listed:
  • Anand B. Gulati

    (Hanken School of Economics, Finland)

  • James W. Kolari

    (Texas A&M University, USA)

  • Johan Knif

    (Hanken School of Economics, Finland)

Abstract

This study empirically examines how exchange rate shocks affect firms’ competitiveness in the small, export-oriented country of Finland. Specifically, using Sweden as a benchmark and controlling for cross-country sector and industry effects, the forex competition hypothesis is tested using the impact of exchange rate shocks on Finnish stock returns. The empirical tests reveal statistically significant exchange rate exposure of Finnish stock returns. Comparing pre- versus post-euro periods, equities’ exchange rate exposure is much stronger after the introduction of the euro. Further results indicate that Finnish and Swedish sector and industry stock returns positively co-move. This implies market integration in contradiction to the forex competition hypothesis. However, for some sectors and industries interaction variables reveal that the co-movement is conditional on exchange rate movements, especially in the post-euro period.

Suggested Citation

  • Anand B. Gulati & James W. Kolari & Johan Knif, 2013. "Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland," Multinational Finance Journal, Multinational Finance Journal, vol. 17(1-2), pages 1-47, March - J.
    • Handle: RePEc:mfj:journl:v:17:y:2013:i:1-2:p:1-47
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    2. Panayiotis Theodossiou, 2015. "Skewed Generalized Error Distribution of Financial Assets and Option Pricing," Multinational Finance Journal, Multinational Finance Journal, vol. 19(4), pages 223-266, December.

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    More about this item

    Keywords

    exchange rate exposure; stock returns; cross-country industry competition; market integration; pre- and post-euro;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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