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Asymmetric Exchange Rate Exposure of Stock Returns: Empirical Evidence from Chinese Industries

Listed author(s):
  • Cuestas, Juan Carlos


    (Department of Economics, University of Sheffield)

  • Tang, Bo


    (Department of Economics, University of Sheffield)

This study explores the asymmetric exchange rate exposure of stock returns building upon the capital asset pricing model (CAPM) framework, using monthly returns of Chinese industry indices. In accordance with the existing literature, industry returns are subject to lagged exposure effects, but the asymmetries vary across industries, which could be due to the discrepancies of trade balance and ownership of certain industries. Furthermore, the dynamic multipliers depict that industry returns quickly respond to changes in the exchange rate and correct the disequilibrium within a short time, making the long run exposure to be symmetric or very small. The remaining shocks are mainly explained by the return of market portfolios. This implies that the ongoing restrictions on the RMB daily trading band do indeed protect the Chinese stock market against the effects of currency movements.

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Paper provided by Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration in its series RIEI Working Papers with number 2016-03.

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Length: 34 pages
Date of creation: 08 Apr 2016
Handle: RePEc:xjt:rieiwp:2016-03
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