Stock Exposure to Exchange Rate Risk: Evidence from Emerging Markets

• Main Authors: Li-Jen Chen, 陳麗珍
• Other Authors: Chin-Wen Hsin
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/45897654662937325603

碩士 === 元智大學 === 財務金融學系 === 94 === In this study I examine the effect of exchange rate changes on stock returns in Asian emerging markets, including Hong Kong, Indonesia, Korea, Malaysia, Singapore, Thailand and Taiwan. The total exchange rate effects on stocks are found to change over time while the changes do not conform to those of real economies in terms of national import/export data, suggesting the existence of other forces in the relationship between stock returns and the exchange rate risk. I thus decompose the total exchange rate risk exposure of a stock return into market-level, industry-level, and firm-level effects. The empirical results find that exchange rate risk often shows impacts of opposite directions on a firm’s stock return due to market-level, industry-level and firm-level factors. The relative importance of these sources of currency risk exposure varies across markets. We further test for specific determinants of stock exposures to exchange rate risk, including the attention of foreign capital, the engagement of hedging activities, and the degree of international competition. Nonetheless, none of those factors provide strong and consistent results as hypothesized. More complete firm-level information is expected to shed more light on such observation.