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"We find that about 13% of our sample of 817 European multinational firms experienced economically significant exposure effects to the Japanese yen, 14% to the US dollar and 22% to the UK pound. Our evidence differs substantially from the US experience and is robust across sub-sample periods, suggesting that a depreciating (appreciating) euro against foreign currencies has a net negative (positive) impact on European stock returns. Short-term exposure seems to be relatively well hedged, where considerable evidence of long-term exposure is found. Firms with weak liquidity positions tend to have smaller exposures. Foreign exposure is found to increase with firm size." Copyright Blackwell Publishers Ltd, 2006.

SUMMARYWe apply extreme value analysis to US sectoral stock indices in order to assess whether tail risk measures like value-at-risk and extremal linkages were significantly altered by 9/11. We test whether semi-parametric quantile estimates of 'downside risk' and 'upward potential' have increased after 9/11. The same methodology allows one to estimate probabilities of joint booms and busts for pairs of sectoral indices or for a sectoral index and a market portfolio. The latter probabilities measure the sectoral response to macro shocks during periods of financial stress (so-called 'tail-ˇs'). Taking 9/11 as the sample midpoint we find that tail-ˇs often increase in a statistically and economically significant way. This might be due to perceived risk of new terrorist attacks. Copyright  2008 John Wiley & Sons, Ltd. Received 13 May 2005; Revised 1 September 20061. INTRODUCTION Does US common stock exhibit a higher propensity toward sharp price declines since the dreadful 9/11 events? Do sharp drops in stock prices tend to co-move more frequently since 9/11? Most financial practitioners would probably give a positive answer to both questions. Answering these two questions is crucial from a regulatory (potential 9/11 impact on US systemic stability) and risk management point of view (potential 9/11 impact on the scope for risk diversification during times of market stress). The more stocks or sectoral indices jointly drop in value, the more in danger are even large investment banks and institutional investors that hold widely diversified trading portfolios. The number of stocks or sectors affected by a crisis situation may also determine the severity of any real effects that might follow.The question arises why one would expect a lasting impact of 9/11 in the financial markets. Empirical evidence suggests that US common equity rapidly recovered in the aftermath of 9/11 (see, for example, Chen and Siems, 2004). However, 9/11, the Madrid and London bombings, as well as the Al-Qaeda threats toward the US-led 'War on Terror' coalition created the perception of a globalization of 'terrorism risk' (see de Mey, 2003;Brown et al., 2004). This may well have increased systematic risk in the equity markets. A number of event studies investigated the 9/11 impact on a few sectors like airlines (Drakos, 2004) and the (re)insurance business (Kunreuther and Michel-Kerjan, 2004). This paper extends the scant 9/11 finance literature with a volatility and dependence analysis of extreme events for different indices of US common stock on a sectoral level. More specifically, we try to assess whether 9/11 has a statistically and economically significant impact on our volatility and co-movement measures. We opt for a sectoral focus because some sectors are by nature more vulnerable to terrorist attacks than others (e.g., banking, insurance, transportation or public utilities). The study of asset return linkages during crisis periods is not new, although most previous studies focused on cross-country linkages between asset returns. The bu...

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