The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APT-modelling
We estimate the impact of dollar changes on the value of German DAX corporations, using APT-modelling for the period 1977 - 1995. Several macroeconomic risk factors, including the dollar and a residual market factor representing the general market risk, are specified. The general notion is that the export-oriented German companies should benefit from increasing dollar values. We find time-varying dollar exposure presumably depending on the prevailing trade regime. Dollar sensitivity is positive as expected in periods with a positive trade balance, whereas it turns negative in periods with a negative trade balance (e.g., in the first half of the 1980s). APT-modelling simultaneously considers exchange rate exposure and risk-premia of macroeconomic risk factors, the latter also being unstable over time.
|Date of creation:||Dec 2003|
|Date of revision:|
|Publication status:||Published in Darmstadt Discussion Papers in Economics . 127 (2003-12)|
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- Sohnke M. Bartram, 2002.
"Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations,"
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- Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
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