Exchange rate exposure and financial crises: evidence from emerging Asian markets

This paper examines exchange rate exposures in six emerging Asian markets during the Asian financial crisis of 1997–1998 and the global financial crisis of 2007–8. Using firm-level stock return data and trade-weighted exchange rates on a daily basis during the period of 1994–2013, we find that changes in exchange rates affect individual firms’ stock returns systematically in most of the Asian economies. The results remain robust when the model is extended to include a set of additional control variables of stock market pricing factors. The two financial crises are shown to adversely affect firms’ stock returns in different patterns. Small emerging economies in Asia experienced significant exchange rate exposures during the Asian financial crisis. In contrast, the global financial crisis affected relatively larger Asian markets that have a close trade relationship with the U.S.