The response of industry stock returns to market, exchange rate and interest rate risks

Abstract

The working papers are produced by The University of Manchester -Manchester Business School and are to be circulated for discussion purposes only. Their contents should be considered to be preliminary. The papers are expected to be published in due course, in a revised form and should not be quoted without the authors' permission. Author(s) and affiliation AbstractThis study investigates the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy and the UK. In addition to exposure to the market, significant levels of exposure to both exchange rate risk, in the four countries, and interest rate risk, in France and Germany, are identified. Further, responses to sources of risk are decomposed into components attributable to news about future dividends, real interest rates and excess returns. All three sources of risk contain significant information about future cash flows and excess returns. Hyde, S. (2007). The response of industry stock returns to market, exchange rate and interest rate risks. Manchester Business School Working Paper, Number 2007-491, available: http://www.mbs.ac.uk/research/working-papers.aspx. How to quote or cite this documentThe response of industry stock returns to market, exchange rate and interest rate risksStuart Hyde * AbstractThis study investigates the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy and the UK. In addition to exposure to the market, significant levels of exposure to both exchange rate risk, in the four countries, and interest rate risk, in France and Germany, are identified. Further, responses to sources of risk are decomposed into components attributable to news about future dividends, real interest rates and excess returns. All three sources of risk contain significant information about future cash flows and excess returns.

Exchange Rate and Interest Rate Exposure of UK Industries Using First‐order Autoregressive Exponential GARCH‐in‐mean (EGARCH‐M) Approach

“…This assertion is further supported in Sweeney and Warga (1986), Choi and Elyasiani (1997) and Joseph and Vezos (2006). Hyde (2007) found for industry sectors in UK, Germany and Italy that exposure to exchange rate was more significant than interest rate exposure. However, for France, exposure to exchange rate was equally as important to exposure arising from interest rates.…”

“…Hyde () found for industry sectors in UK, Germany and Italy that exposure to exchange rate was more significant than interest rate exposure. However, for France, exposure to exchange rate was equally as important to exposure arising from interest rates.…”

“…Then for interest rate exposure, this has been investigated by Madura and Zarruk (1995), Dinenis and Staikouras (1998) and Oertmann et al (2000). Then in some instances, exchange rate and interest rate exposure of UK non-financial firms and industries has been simultaneously examined in Prasad and Rajan (1995), Rees and Unni (2005) and Hyde (2007). However, these UK studies on interest rate risk have only been on the exposure to the short-term interest rate (one-month and three-month Treasury bill) while exposure to the longterm interest rate which have a considerable influence on the cost of borrowing and consequently corporate investment decisions of industrial corporations (Bartram, 2002 andFerrer et al, 2010) has not been investigated.…”

Cointegration Analysis Between Stock Exchange and TL/FX Saving Deposits, Gold, Housing Markets in Turkey

“…Bernanke ve Kuttner (2005), ABD gösterge faiz oranındaki beklenmeyen varsayımsal 25 baz puanlık indirimin geniş (tanımlı) hisse senedi endeksinde % 1 oranında artışa neden olduğunu belirlemiştir. 4 Avrupa ülkesi için, 1973:01-2004:12 döneminde, hisse senedi getirilerinin döviz, faiz ve piyasa riskine olan duyarlılığını analiz eden Hyde (2007), faiz oranı riskinin Fransa ve Almanya'da pozitif ve önemli olduğunu belirlemiştir. 1990:01-2005:0: döneminde faiz oranı değişikliklerinin hisse senedi getirileri üzerindeki etkisini önde gelen Avustralya bankaları için inceleyen Vaz, Ariff ve Brooks (2008), faiz oranı artış kararlarının açıklanması sonrasında hisse senedi getirilerinde olumsuz bir etkinin gözlenmediğini belirlemiştir.…”

The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana

“…External factors such as government regulations, the general business conditions, conditions in the money and capital markets and the tax structure in an economy inter-macroeconomic variables businesses require to effectively plan are the rates of exchange and interest (see, for instance, Caporale & Gil-Alana, 2016). Hyde (2007) explained that the risks associated with these two economic variables constitute an important effect on common stocks. It is asserted that financial sector liberalization and advances in the application of technology in the financial sector have stirred up the interaction amid exchange rate, interest rate and stock returns thereby increasing research activity in this area over the years (Mouna & Anis, 2016).…”