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Are exporting firms always a good hedge against currency risk? Evidence from Central and Eastern European Countries

  • M. FRÖMMEL

    ()

  • M. LUETJE

This paper analyzes the exchange rate exposure of exporting firms in (the so far rarely addressed) largest Eastern European transition economies, i.e. Russia and three EU accession countries (CEEC-3). It also controls for possible effects of different exchange rate regimes. Substantially improving the results from the existing literature we find for more than 80% of firms in our sample a significant exchange rate exposure. However, the magnitude and direction of firms’ exposure depends on the particular exchange rate and clearly differs between Russia and the CEEC-3. We find that share prices increase with a depreciation of the domestic currency and only against the US Dollar in Russia, but decrease with a depreciation and only against the Euro in the CEEC-3. Such substantial differences may result from a differing dominance of exposure channels in the respective economies, such as the countryspecific export structure and foreign debt. Finally, the switch from a pegged to a flexible exchange rate regime appears to be less important for exposure.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 14/873.

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Length: 34 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:rug:rugwps:14/873
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  11. Muller, Aline & Verschoor, Willem F.C., 2007. "Asian foreign exchange risk exposure," Journal of the Japanese and International Economies, Elsevier, vol. 21(1), pages 16-37, March.
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  16. Bodnar, G.M. & Dumas, B. & Marston, R.C., 1998. "Pass-Through and Exposure," Weiss Center Working Papers 98-01, Wharton School - Weiss Center for International Financial Research.
  17. Koutmos, Gregory & Martin, Anna D., 2003. "Asymmetric exchange rate exposure: theory and evidence," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 365-383, June.
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