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We use a sample of 269 UK non-financial firms to study the sensitivity of foreign exchange exposure, and its determinants, to the different estimation methods. The standard Jorion's model suggests that 14.93% (30.50%) of the firms in our sample are exposed directly or indirectly to the fluctuations in the TWC (the US$, the Euro or the JP¥). However, the exposure increases substantially to 85.13% (96.65%) when time varying exposure regressions with orthogonalized market returns are used. We also show that the determinants of currency exposure are model-dependent. While the cross-sectional results suggest very little or no relationship between firm-specific factors and currency exposure, the explanatory power of these factors increase when data is pooled across firms and time. JEL Classifications: F31; F23Keywords: Foreign exchange exposure; Currency risk; Panel estimation 2 IntroductionSeveral studies predict that all firms should be subject to foreign exchange exposure as their cash flows are affected, directly or indirectly, by exchange rate movements (Shapiro, 1975;Heckman, 1985;Levi, 1994;Marston, 2001). In the light of this, it is puzzling why most empirical studies show that foreign exchange fluctuations have little or no impact on stock returns (Jorion, 1990;Bartov and Bodnar, 1994;El-Masry et al. 2007;Hutson and Stevenson, 2010).This study uses a sample of 269 UK non-financial firms to investigate whether the weak empirical association between exchange rate changes and stock returns can be attributed to bad model problems. Our analysis makes three important methodological contributions to the literature on the foreign exchange exposure of individual firms. First, we relax Jorion's (1990) assumption that foreign exchange exposure is constant over time.Several studies (Smith and Stulz, 1985;Allayannis and Weston, 2001;Dunne et al., 2004) show that a firm's exposure to exchange rate movements is related to firm-specific factors, such as size, liquidity, hedging activities and growth opportunities, which are expected to vary over time. We use GARCH-based two-factor asset pricing model with time varying coefficients (GARCH-TVC hereafter) to model the time varying nature of firms' exposure to currency movements. 1 Second, Priestley and degaard (2007) argue that the exposure coefficient obtained from Jorion's model does not capture the stock's total exposure to the foreign exchange movements. Instead, it only measures the stock's exposure over and above that of the market portfolio. Priestley and degaard (2007) suggest that orthogonalized, rather than actual, market returns should be used to estimate the exchange rate exposure. We improve on Priestley and degaard's (2007) methodology by allowing the coefficients and the residuals of the orthogonalized regressions to vary over time. Finally, previous studies use cross-sectional analysis to examine the determinants of the foreign exchange exposure.Although some of these determinants, such as industry, vary only across firms, others vary across firms a...

In this article, we explore what determines the decisions of emerging‐market multinational corporations (MNCs) to invest in Africa and whether this is any different from their counterparts in mature markets, focusing on the HRM context. More specifically, we explore the effect of potential host‐country wages, local capabilities, and the relative rights of owners versus workers on foreign direct investment (FDI) decisions, as well as other relevant factors such as mineral resources and corruption. We found that emerging‐market MNCs were not deterred by relatively weak property owner rights (as indeed, was also the case for their counterparts from mature markets); hence, any weakening of countervailing worker rights is unlikely to unlock significant new FDI. However, emerging‐market MNCs were more likely to invest in low‐wage economies and did not appear to be concerned by local skills gaps; the latter would reflect the relative de facto ease with which even partially skilled expatriate labor can be imported into many African countries. At the same time, a reliance on low‐wage, unskilled labor, coupled with the extensive usage of expatriates, brings with it a wide range of challenges for the HR manager, which a firm committed to cost‐cutting may lack the capabilities to resolve. © 2014 Wiley Periodicals, Inc.

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This study investigates the trading activity in options and stock markets around informed events with extreme daily stock price movements. We find that informed agents are more likely to trade options prior to negative news and stocks ahead of positive news. We also show that optioned stocks overreact to the arrival of negative news, but react efficiently to positive news. However, the overreaction patterns are unique to the subsample of stocks with the lowest pre‐event abnormal option/stock volume ratio (O/S). This finding suggests that the incremental benefit of option listing is related to the level of option trading activity, over and beyond the presence of an options market on the firm's stock. Finally, we find that the pre‐event abnormal O/S is a better predictor of stock price patterns following a negative shock than is the pre‐event O/S, implying that the former may contain more information about the future value of stocks than the latter. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:1173–1194, 2015

This study investigates the impact of FTSE100 index revisions on firms' systematic liquidity risk and the cost of equity capital. We show that index membership enhances all aspects of liquidity, whereas stocks that leave the index exhibit no significant liquidity change. We also show that the liquidity risk premium and the cost of equity capital decline significantly after additions, but do not exhibit any significant change following deletions. The control sample analysis indicates that observed decline in liquidity premium and the cost of equity capital is not driven by factors other than index revisions. Our evidence is consistent with Amihud and Mendelson's (1986) argument that since liquidity is priced, an increase in liquidity will result in lower expected returns. Furthermore, the asymmetric impact of additions and deletions on stock liquidity and cost of capital is consistent with the view that the benefits of index membership are permanent (see, e.g. Chen et al. 2004Chen et al. , 2006. JEL Classification: G12, G32