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The response of industry stock returns to market, exchange rate and interest rate risks


  • Hyde, Stuart J


This study investigates the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy and the UK. In addition to exposure to the market, significant levels of exposure to both exchange rate risk, in the four countries, and interest rate risk, in France and Germany, are identified. Further, responses to sources of risk are decomposed into components attributable to news about future dividends, real interest rates and excess returns. All three sources of risk contain significant information about future cash flows and excess returns.

Suggested Citation

  • Hyde, Stuart J, 2007. "The response of industry stock returns to market, exchange rate and interest rate risks," MPRA Paper 9679, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9679

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    References listed on IDEAS

    1. Jongmoo Choi & Elyas Elyasiani, 1997. "Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 267-286, October.
    2. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    3. John Campbell & Jianping Mei, 1993. "Where do Betas Come From? Asset Price Dynamics and the Sources of Systematic Risk," NBER Working Papers 4329, National Bureau of Economic Research, Inc.
    4. Kiymaz, Halil, 2003. "Estimation of foreign exchange exposure: an emerging market application," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 71-84, February.
    5. Jorion, Philippe, 1991. "The Pricing of Exchange Rate Risk in the Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 363-376, September.
    6. Ahmed A. El-Masry, 2004. "The Exchange Rate Exposure of UK Nonfinancial Companies: Industry-Level Analysis," International Finance 0401001, EconWPA.
    7. Burmeister, Edwin & McElroy, Marjorie B, 1988. " Joint Estimation of Factor Sensitivities and Risk Premia for the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 721-733, July.
    8. Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
    9. Jia He & Lilian K. Ng, 1998. "The Foreign Exchange Exposure of Japanese Multinational Corporations," Journal of Finance, American Finance Association, vol. 53(2), pages 733-753, April.
    10. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-345, July.
    11. Khoo, Andrew, 1994. "Estimation of foreign exchange exposure: an application to mining companies in Australia," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 342-363, June.
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    Cited by:

    1. Nhung LE, 2017. "The impact of family ownership status on determinants of leverage. Empirical evidence from South East Asia," Working Papers of LaRGE Research Center 2017-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    2. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "Some thoughts on accurate characterization of stock market indexes trends in conditions of nonlinear capital flows during electronic trading at stock exchanges in global capital markets," MPRA Paper 49921, University Library of Munich, Germany.
    3. Andrieș, Alin Marius & Ihnatov, Iulian & Tiwari, Aviral Kumar, 2014. "Analyzing time–frequency relationship between interest rate, stock price and exchange rate through continuous wavelet," Economic Modelling, Elsevier, vol. 41(C), pages 227-238.
    4. Nikolaos SARIANNIDIS & Grigoris GIANNARAKIS & Nicolaos LITINAS & George KONTEOS, 2010. "Á GARCH Examination of Macroeconomic Effects on U.S. Stock Market: A Distinction Between the Total Market Index and the Sustainability Index," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 129-142.
    5. Mojisola Olugbode & Ahmed El-Masry & John Pointon, 2014. "Exchange Rate and Interest Rate Exposure of UK Industries Using First-order Autoregressive Exponential GARCH-in-mean (EGARCH-M) Approach," Manchester School, University of Manchester, vol. 82(4), pages 409-464, July.
    6. repec:eee:jimfin:v:79:y:2017:i:c:p:218-231 is not listed on IDEAS
    7. Muhammad Imtiaz Subhani & Syed Akif Hasan & Rabia Mohammad Ayub Moten & Amber Osman, 2011. "An Application of GARCH while investigating volatility in stock returns of the World," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 5(2), pages 49-59, Fall.
    8. Jiranyakul, Komain, 2016. "Are Thai Equity Index Returns Sensitive to Interest and Exchange Rate Risks?," MPRA Paper 71602, University Library of Munich, Germany.
    9. repec:eco:journ1:2017-03-65 is not listed on IDEAS
    10. repec:spr:jknowl:v:8:y:2017:i:3:d:10.1007_s13132-015-0301-4 is not listed on IDEAS
    11. Román Ferrer & Cristóbal González & Gloria M. Soto, 2010. "Linear and nonlinear interest rate exposure in Spain," Managerial Finance, Emerald Group Publishing, vol. 36(5), pages 431-451, April.

    More about this item


    Exchange rate exposure; interest rate risk; stock returns;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange


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