Foreign exchange exposure and the pricing of exchange rate risk

Fatemi, Ali M; Tavakkol, Amir; Dukas, Stephen P.

doi:10.1016/s1044-0283(96)90003-4

Cited by 25 publications

(1 citation statement)

References 26 publications

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“…Others argue that hedging activities by multinational firms have greatly reduced their exposure to foreign exchange risk, and stock returns reflect only the residual exposure net of hedging effects (Bartram and Bodnar, 2007;Bartram et al, 2010). Therefore, the relations between stock returns and currency values are weak (Fatemi et al, 1996;Jorion, 1991;Griffin and Stulz, 2001;Nieh and Lee, 2001;Williamson, 2001;Kollias et al, 2012). Jorion (1990) claims that significant exchange rate effects exist only in the stock prices of multinational firms with significant foreign operations.…”

Section: Introductionmentioning

confidence: 99%

A currency preferential approach to international equity investment

Qiu

Pinfold²,

Rose

2015

Applied Economics

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We propose a Timex strategy for reducing the foreign exchange risk associated with international equity investment, pertaining to countries with currencies correctly or undervalued by the standard of PPP. The performance of Timex is examined from the perspectives of eight developed nations with long histories of free-floating currencies. Based on the data from 1986:Q1 to 2014:Q4, we find unambiguous evidence for the superior performance of Timex in the foreign exchange market. Compared with the passive diversification strategy and the Morgan Stanley Capital International (MSCI) World index, Timex offers higher total returns and risk-adjusted total returns when rebalanced every 6 or 12 months for investors based in all eight countries under study. When rebalanced at a 3-year interval, Timex outperforms the passive diversification and the MSCI World index for five and all eight countries, respectively.

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Section: Introductionmentioning

confidence: 99%

A currency preferential approach to international equity investment

Qiu

Pinfold²,

Rose

2015

Applied Economics

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Wechselkurse und Unternehmenswert: Erste Ergebnisse vom Deutschen Aktienmarkt

Glaum

Brunner

Himmel

1999

Management Verteilter Kompetenzen in Multinationalen Unternehmen

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Exchange rate exposure: A nonparametric approach

Aysun

Guldi

2011

Emerging Markets Review

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The typical conclusion reached when researchers examine exchange rate exposure using a linear model is that only a few firms are exposed. This finding is puzzling since institutional knowledge and basic finance theory points to a larger effect. In this paper, we compare results obtained using a linear approach with those from nonlinear, partially parametric and nonparametric models. Our data consist of nonfinancial firms in five emerging market countries and the US. Among firms that were not found to have a linear exposure, we find that a considerable proportion of these are exposed when nonlinear, partially parametric or nonparametric models are used. The increase in exposure is most striking when a nonparametric model is used. We also find evidence that firms' hedging activities decrease linear exposure but do not affect nonparametric exposure.

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Foreign exchange exposure and the pricing of exchange rate risk

Cited by 25 publications

References 26 publications

A currency preferential approach to international equity investment

A currency preferential approach to international equity investment

Wechselkurse und Unternehmenswert: Erste Ergebnisse vom Deutschen Aktienmarkt

Exchange rate exposure: A nonparametric approach

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