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Exchange Rate Risk Exposure and the Value of European Firms

We investigate the exposure of European firms to unexpected exchange rate changes of the Euro against currencies of Europe’s main trade partners: the USA, UK, and Japan. Using monthly data for the period from 1999 to 2011 and accounting for underlying macroeconomic fundamentals, the analysis covers 600 firms - constituents of the Euro Stoxx TMI and the Euro Stoxx 50. The large number of firms in the sample furthers the insight of how firms’ characteristics, that is the level of international involvement, country of origin, industry and firm size associate with the exposure to exchange risks. Among the currency pairs analyzed the Yen is shown to have the highest impact on the market value of European firms, with the largest effect on firms in the financial sector. Moreover, the impact is greater for non exporters and large capitalization firms. The relationship between firms’ sensitivities to market and exchange rate fluctuations is explored.

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File URL: http://www.utas.edu.au/__data/assets/pdf_file/0020/327152/2012-09-_DP_Parlapiano_Alexeev.pdf
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Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 2012-09.

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Length: 38 pages
Date of creation: 20 Nov 2012
Date of revision: 20 Nov 2012
Publication status: Published by the University of Tasmania. Discussion paper 2012-09
Handle: RePEc:tas:wpaper:201209
Contact details of provider: Postal: Private Bag 85, Hobart, Tasmania 7001
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
Web page: http://www.utas.edu.au/economics-finance/

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