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Asymmetric exchange-rate exposure in BRIC countries

Author

Listed:
  • Dranev Yury

    () (National Research University Higher School of Economics)

  • Maxim Babushkin

    () (Ernst&Young)

Abstract

This work contributes to the literature on exchange-rate exposure in emerging markets. We studied datasets of exchange-listed companies from four BRIC countries and discovered that exchange rate movements in the US dollar and euro affected more than 10% of these firms between 2003 and 2013. The most interesting finding of this research is that stock returns behaved differently with increasing and decreasing currency rates. For capturing the asymmetric relationship of stock and exchange rate movements, we applied a nonlinear dynamic model, which significantly improved our results compared to the empirical findings of simple versions of the Adler Dumas (1984) and Jorion (1990) models. We studied determinants of exposure to positive and negative currency movements separately. Although significant determinants in both cases were mostly similar, their weights were different. For example, the ratio of export sales was asymmetrically correlated to exchange rate exposures for all countries except Russia. For a better understanding of the sources of asymmetry in exchange rate exposure, we separately studied the positive and negative coefficients of currency exposure from the non-asymmetric model. This was never done before and natural in a way that determinants should affect positive and negative currency exposures differently. We found evidence of the contrasting impact of export sales and foreign debt in both cases.

Suggested Citation

  • Dranev Yury & Maxim Babushkin, 2014. "Asymmetric exchange-rate exposure in BRIC countries," HSE Working papers WP BRP 27/FE/2014, National Research University Higher School of Economics.
  • Handle: RePEc:hig:wpaper:27/fe/2014
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    File URL: http://www.hse.ru/data/2014/02/04/1329381211/27FE2014.pdf
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    References listed on IDEAS

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    Cited by:

    1. Cuestas, Juan Carlos & Huang, Ying & Tang, Bo, 2016. "Does the Yuan’s Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms?," MPRA Paper 70921, University Library of Munich, Germany.

    More about this item

    Keywords

    exchange rate exposure; currency markets; stock returns; asymmetric model; emerging markets.;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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