The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study

Donnelly, Ray; Sheehy, Edward

doi:10.1057/palgrave.jibs.8490130

Cited by 75 publications

(44 citation statements)

References 13 publications

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“…Bartov and Bodnar (1995) relate the lagged exposure to the choice of accounting methodologies and document it diminishing over time. Several other studies (Donnelly and Sheehy, 1996;Walsh, 1994) find only weak significance for lagged exchange rates and, in contrast, most others considering this possibility find no significant lag variables and are thus are in line with the market efficiency hypothesis (e.g. Amihud, 1994).…”

Section: Exposure To Exchange Rate Risk and The Exposure Puzzlementioning

confidence: 81%

The exchange rate exposure puzzle

2007

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Based on basic financial models and reports in the business press, exchange rate movements are generally believed to affect the value of nonfinancial firms. In contrast, the empirical research on nonfinancial firms typically produces fewer significant exposures estimates than researchers expect, independent of the sample studied and the methodology used, giving rise to a situation known as "the exposure puzzle". This paper provides a survey of the existing research on the exposure phenomenon for nonfinancial firms. We suggest that the exposure puzzle may not be a problem of empirical methodology or sample selection as previous research has suggested, but is simply the result of the endogeneity of operative and financial hedging at the firm level. Given that empirical tests estimate exchange exposures net of corporate hedging, both, firms with low gross exposure that do not need to hedge, as well as firms with large gross exposures that employ one or several forms of hedging, may exhibit only weak exchange rate exposures net of hedging. Consequently, empirical tests yield only small percentages of firms with significant stock price exposures in almost any sample. Keywords The Exchange Rate Exposure Puzzle AbstractBased on basic financial models and reports in the business press, exchange rate movements are generally believed to affect the value of nonfinancial firms. In contrast, the empirical research on nonfinancial firms typically produces fewer significant exposures estimates than researchers expect, independent of the sample studied and the methodology used, giving rise to a situation known as "the exposure puzzle". This paper provides a survey of the existing research on the exposure phenomenon for nonfinancial firms. We suggest that the exposure puzzle may not be a problem of empirical methodology or sample selection as previous research has suggested, but is simply the result of the endogeneity of operative and financial hedging at the firm level. Given that empirical tests estimate exchange exposures net of corporate hedging, both, firms with low gross exposure that do not need to hedge, as well as firms with large gross exposures that employ one or several forms of hedging, may exhibit only weak exchange rate exposures net of hedging. Consequently, empirical tests yield only small percentages of firms with significant stock price exposures in almost any sample.

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Section: Exposure To Exchange Rate Risk and The Exposure Puzzlementioning

confidence: 81%

The exchange rate exposure puzzle

2007

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“…Their study reveals no long-run relationship between these variables, but rather a bicausal relationship in the short run. Donnelly and Sheehy (1996) document a significant contemporaneous relation between exchange rate and market value of large U.K. exporters. Abdalla and Murinde (1997) investigate stock price-exchange rate relationships in the emerging financial markets of India, Korea, Pakistan and the Philippines and find unidirectional causality from exchange rate to stock price in India, Korea and Pakistan.…”

Section: Literature Reviewmentioning

confidence: 97%

Analysis of Symmetric and Asymmetric Nonlinear Causal Relationship between Stock Prices and Exchange Rates for Selected Emerging Market Economies

Yılancı¹,

Bozoklu²

2015

dogus

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This study investigates the symmetric and asymmetric nonlinear causal relationship between exchange rates and stock prices in BRICS and Turkey. To this end, the Mackey-Glass model allowing to test the symmetric and asymmetric nonlinear causality by identifying the types of feedbacks of the related variables has been employed. While the results of the symmetric form of the test present little evidence, the results of asymmetric counterpart indicates strong evidence for the causal relationship. In conclusion, these findings imply the existence of the noisy tradings and speculative behaviours in both exchange rate and stock markets. Keywords

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“…This risk is caused by the unpredictable movements of exchange rates and the effect of exchange rates on company performance. For example, many studies, such as Jorion (1990), Agarwal and Ramaswami (1992), Bodnar and Gentry (1993), Amihud (1994), Choi and Prasad (1995), Donnelly and Sheehy (1996), He andNg (1998), Miller andReuer (1998), Hagelin and Prambourg (2004) and Clark and Mefteh (2011) to mention only a few, documented the effect of exchange rate fluctuations on firm performance and the firm's risk profile. 5 Pesaran et al (2006) showed that severe fluctuations in exchange rates may significantly affect the companies' balance sheets, particularly international ones, and increase their default risk.…”

Section: Theoretical and Empirical Backgroundmentioning

confidence: 99%

Modelling credit spreads with time volatility, skewness, and kurtosis

Clark

Baccar

2015

Ann Oper Res

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This paper seeks to identify the macroeconomic and financial factors that drive credit spreads on bond indices in the US credit market. To overcome the idiosyncratic nature of credit spread data reflected in time varying volatility, skewness and thick tails, it proposes asymmetric GARCH models with alternative probability density functions. The results show that credit spread changes are mainly explained by the interest rate and interest rate volatility, the slope of the yield curve, stock market returns and volatility, the state of liquidity in the corporate bond market and, a heretofore overlooked variable, the foreign exchange rate. They also confirm that the asymmetric GARCH models and Student-t distributions are systematically superior to the conventional GARCH model and the normal distribution in in-sample and out-of-sample testing.

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The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study

Cited by 75 publications

References 13 publications

The exchange rate exposure puzzle

The exchange rate exposure puzzle

Analysis of Symmetric and Asymmetric Nonlinear Causal Relationship between Stock Prices and Exchange Rates for Selected Emerging Market Economies

Modelling credit spreads with time volatility, skewness, and kurtosis

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