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Exposure and Markups

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  • Allayannis, George
  • Ihrig, Jane

Abstract

This article examines how to properly specify and test for factors that affect exchange-rate exposure. Starting from theoretical underpinnings and a sample of U.S. manufacturing industries between 1979 and 1995, we find that 4 of 18 industry groups are significantly exposed to exchange-rate movements through the effect of industry competitive structure, export share, and imported input share. On average, a 1% appreciation of the dollar decreases the return of the average industry by 0.13%. Consistent with our model's predictions, as an industry's markups fall (rise), its exchange-rate exposure increases (decreases). Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Allayannis, George & Ihrig, Jane, 2001. "Exposure and Markups," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 805-835.
  • Handle: RePEc:oup:rfinst:v:14:y:2001:i:3:p:805-35
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