Exchange Rate Exposure: International Evidence from Daily Firm-Level Data

Bang Jeon, Dazhi Zheng () and Lei Zhu ()
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Dazhi Zheng: West Chester University of Pennsylvania, Postal: West Chester, PA 19383, USA
Lei Zhu: West Chester University of Pennsylvania, Postal: West Chester, PA 19383, USA

Journal of Economic Integration, 2017, vol. 32, issue 1, 112-159

Abstract: This paper examines impact of changes in the foreign exchange rate on firms’ stock returns in global markets. Using daily firm-level data for 14 international markets from January 2000 to December 2011, we find evidence that changes in the trade-weighted multilateral exchange rate systematically impact individual firms’ stock returns for all seven emerging markets and some advanced economies. Controlling for price factors such as market risk premium, Fama-French factors, the momentum, and the liquidity factor, we correct the upward bias of the estimation. Stocks in export-oriented economies are shown to considerably benefit from local currency depreciation. Further, in emerging markets, exchange rate movements affect larger firms with more intense global connections, but in advanced markets, they affect smaller firms with limited access to hedging to a larger extent. Long-run equilibrium relationships between stock markets and foreign exchange markets become stronger since the global financial crisis of 2008~2009.

Keywords: Exchange Rate Exposure; International Stock Markets; Emerging Markets (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0709

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