Hot money effect or foreign exchange exposure? Investigation of the exchange rate exposures of Taiwanese industries

Effect of Central Bank Intervention in Estimating Exchange Rate Exposure: Evidence from an Emerging Market

“…The average value of exchange rate exposure coefficients is 1.317, indicating that a 1 per cent appreciation of Indian rupee causes almost 1.32 per cent gain in the firms’ stock returns. These results are similar to those of previous studies on emerging markets which report more than half of their sample firms with significant exposure (Bacha et al, 2013; Kiymaz, 2003; Parsley & Popper, 2006; Tsai et al, 2014; Ye et al, 2014). The findings indicating that, on average, firms gain from the appreciation of domestic currency is also not surprising and consistent with the prior literature on emerging markets (Chue & Cook, 2008; Dominguez & Tesar, 2006; Muller & Verschoor, 2007; Tsai et al, 2014; Ye et al, 2014).…”

“…Concerning the direction of exchange rate exposure, the study finds that overall, an appreciation of Indian rupee is associated with positive stock returns. These findings are in contrast to the theoretical expectation, but, surprisingly, supported by previous studies on emerging markets (Chue & Cook, 2008; Dominguez & Tesar, 2006; Muller & Verschoor, 2007; Tsai et al, 2014; Ye et al, 2014). These findings can be attributed to the reliance of Indian firms on imports for the production and exports to the other markets.…”

“…On the other hand, few studies find a substantial number of firms with significant exchange rate exposure. These are Parsley and Popper (2006) for East Asian countries, Kiymaz (2003) for Turkish firms, Bacha et al (2013) for Malaysian firms and Tsai et al (2014) for Taiwanese industries. Ye et al (2014) find that about half of the emerging market firms from 20 countries are significantly exposed to exchange rate changes.…”

“…Conventionally all firms, domestic and international, are exposed to exchange rate risk, but empirical studies have found mixed results. While some studies report strong evidence of exposure (Bacha, Mohamad, Raihan, & Mohd, 2013; Kiymaz, 2003; Parsley & Popper, 2006; Tsai, Chiang, Tsai, & Liou, 2014; Ye, Hutson, & Muckley, 2014), a large number of studies reveal that only a small number of firms are significantly affected by exchange rate changes (Chue & Cook, 2008; Jorion, 1990; Lin, 2011; Muller & Verschoor, 2007). The inability of empirical evidence to support the theoretical phenomenon gives rise to ‘exchange rate exposure puzzle’, a term mentioned by Bartram and Bodnar (2007).…”

Does Hot Money Impact Stock and Exchange Rate Markets on China?

“…The hot money issue is quite an interesting topic in the financial market currently (Kim & Iwasawa, 2017;Fuertes, Phylaktis, & Yan, 2016;Tsai, Chiang, Tsai, & Liou, 2014). Because of globalisation, hot money 1 can spread around the world, especially in emerging markets.…”