Asymmetric currency exposure of US bank stock returns

Tai, Chu‐Sheng

doi:10.1016/j.mulfin.2005.04.002

Cited by 18 publications

(13 citation statements)

References 40 publications

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“…Koutmos and Martin (2003a) find that in several instances stock returns in Germany, Japan, the UK, and the USA exhibit asymmetric exposure. Similar results are reported in Koutmos and Martin (2003b), Tai (2005), Hsin, Shiah-Hou, and Chang (2007), Tai (2008), and Bartram, Brown, and Minton (2010).…”

Section: Literature Reviewsupporting

confidence: 89%

Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland

Koutmos

Knif

2011

The European Journal of Finance

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This paper investigates asymmetric as well as first- and second-moment exchange rate exposure of the Finnish stock exchange (FSE) during the pre- and post-Euro periods. There is evidence of significant market-level and residual exchange rate exposure in the pre-Euro period. In the period, following the introduction of the Euro, however, exchange rate exposure becomes insignificant both at the market level and at the individual portfolio level with minor exceptions. Obviously, the introduction of the Euro has had a profound impact on the exchange rate exposure of the FSE.exchange rate exposure, post-Euro exposure, asymmetric exposure, exchange rate volatility,

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Section: Literature Reviewsupporting

confidence: 89%

Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland

Koutmos

Knif

2011

The European Journal of Finance

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“…While the asymmetric reaction of trade flows and prices has been empirically documented in prior literature (Baldwin and Krugman, 1989;Ohno, 1989;Knetter, 1994;Kanas, 1997;Pollard and Coughlin, 2003), the nonlinear response of stock returns to exchange rate movements has not received much attention in the exchange risk exposure literature until now. It should moreover be emphasized that the vast majority of empirical studies on nonlinear exchange risk exposure focus on the asymmetric nature of exchange risk exposure over appreciation-depreciation cycles (Choi and Prasad, 1995;Miller and Reuer, 1998;Baba and Fukao, 2000;Koutmos and Martin, 2003a;Koutmos and Knif, 2004;Tai, 2005;Priestley and Ødegaard, 2004). On the other hand, the possibility that firm value is differently affected by large versus small exchange rate fluctuations has only been analyzed by a few authors (Di Iorio and Faff, 2000;Williamson, 2001;Doidge et al, 2002;Bartram, 2004).…”

Section: Introductionmentioning

confidence: 99%

Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms

Müller

Verschoor

2006

Journal of Empirical Finance

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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%

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 currency exposure of US bank stock returns

Cited by 18 publications

References 40 publications

Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland

Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland

Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms

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

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