Asymmetric exchange rate exposure: theory and evidence

Koutmos, Gregory; Martin, Anna D.

doi:10.1016/s0261-5606(03)00012-3

Cited by 136 publications

(134 citation statements)

References 38 publications

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“…We will follow related asymmetric models (e.g. Koutmos & Martin, 2003) by adding to the orthogonalized augmented model (eq. 3) a control variable measuring the impacts of a change in the currency (sign asymmetry).…”

Section: Multiple Asymmetries and Volatilitiesmentioning

confidence: 99%

Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market

Varga¹

2013

IBR

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This study investigates foreign exchange exposure and the impacts of asymmetries and volatilities on the daily returns of Taiwanese non-financial firms from 1990 to 2010. 88.8% of our samples are negatively exposed, companies benefiting from an appreciation of the domestic currency. 14% of the firms have an asymmetrical profile. If this percentage is not negligible, Taiwanese firms exhibit mainly a symmetric exposure. Currency volatilities have a significant impact for only 7.5% of the firms, but for 37.38% of the sample, we observe the existence of an asymmetric volatility. Among them, 65% exhibit a negative sign meaning that good news have a greater impact on the volatility than bad news, which seems counter-intuitive. These results may be explained by a chasing good news behavior and the effects of a high level of information uncertainty.

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Section: Multiple Asymmetries and Volatilitiesmentioning

confidence: 99%

Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market

Varga¹

2013

IBR

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“…Several authors investigate asymmetric response to appreciations and depreciations, as Koutmos and Martin (2003), Bartram (2004), Carter et al (2005) and Tai (2005).…”

Section: Asymmetric Exposure To Exchange Rate Risk: Related Papersmentioning

confidence: 99%

“…According several authors such as Koutmos and Martin (2003) or Muller and Verschoor (2006), various reasons can generate a nonlinear relationship between the value of the firm and the exchange rate movements, mainly asymmetric hedging, incorrect pricing of assets, hysteresis for firms involved in international trade, magnitude of exchange rate fluctuations, pricing policies and market structures, and government interference.…”

Section: Asymmetric Exposure To Exchange Rate Risk: Related Papersmentioning

confidence: 99%

“…The various combination of the exposure and sign coefficients (respectively * 2,i  and 3,i  ) mean different sources of asymmetry as mentioned in section 2. In view to address this issue, we adopt the classification of Koutmos and Martin (2003). …”

Section: Imentioning

confidence: 99%

“…In order to describe the sources of sign asymmetry, we use the classification in Koutmos and Martin (2003), with daily and monthly data. The results are summarized in Tables 4 and 5. www.ccsenet.org/ijef…”

Section: Sign Asymmetry In Exchange Rate Exposurementioning

confidence: 99%

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Multiple Asymmetries and Exchange Rate Exposure at Firm Level: Evidence from Taiwan Stock Market

Varga¹

2012

IJEF

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It has been viewed as an unsolved puzzle that for only a small number of firms a significant impact of foreign exchange rate risk on firm value could be detected empirically even though the financial theory strongly supports that a change in the exchange rate should affect the value of the firm. We explain it by the facts that (i) previous studies mostly investigated mature and non-open economies and (ii) they mostly concentrated on one part of the relationship between exchange exposure and firm value. Our empirical results are based on a sample of 107 Taiwanese non-financial firms from 6 th June 1990 to 14 th July 2010 and the bilateral exchange rate USD / TWD. We use an orthogonalized model with conventional augmented CAPM specifications and asymmetric variables. Because the exposure cannot be viewed as a single coefficient, we also add GJR GARCH specifications to measure the asymmetric profile of the firms and the existence of asymmetric volatility of returns. Our findings show a strong exposure for most of our sample with exclusively a negative exposure (Taiwanese firms benefit from an appreciation of the domestic currency). We also find that exposure is non-linear. Moreover, the asymmetric profiles of the firms modify significantly their exposure. Finally, a high percentage of our monthly sample is affected by a positive coefficient of volatility of the stock returns associated with exchange rates changes but conversely for our daily sample. It means that the leverage of positive and negative shocks changes with the time horizon.Keywords: economic exposure, exchange rate exposure, asymmetric exchange rate exposure, asymmetric volatility, open economy IntroductionSince the breakdown of the Bretton Woods system in 1973, the volatility of exchange rates and its associated risks increase dramatically. Financial theory holds that exchange rate movements significantly affect firm value via their effects on the competitiveness of the firm's products, the cost of its inputs, the value of its foreign assets, its sensitivity to short-term cash flows (i.e. the probability of financial distress) and its cost of capital (i.e. growth opportunity).But there is also much evidence from practitioners that exchange rate movements affect firms. Hung (1992) estimates for example that due to a strong dollar during the 1980s American manufacturers lost annually about USD23 billion, representing 10% of their gross profits. Rosenberg (2003) mentioned another survey which indicates that more than 45% of American companies are adversely affected by a strong dollar and later when the dollar weakened around 2002, various industries experienced higher exports and earnings.This indicates that exchange rate movements affect both small and large firms. Without any doubt, similar observations have been made all around the world. The foreign exchange rate is even becoming a political tool. Academics and practitioners, all agree that fluctuations in foreign exchange rate are a source of uncertainty for the firm, regardless its size an...

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Asymmetric Foreign Exchange Rate Exposure of Listed Commercial Banks

Xie

Zhou

2013

Emerging Technologies for Information Systems, Computing, and Management

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Asymmetric exchange rate exposure: theory and evidence

Cited by 136 publications

References 38 publications

Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market

Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market

Multiple Asymmetries and Exchange Rate Exposure at Firm Level: Evidence from Taiwan Stock Market

Asymmetric Foreign Exchange Rate Exposure of Listed Commercial Banks

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