Is There a Contemporaneous Relation Between Exchange Rates and Stock Prices? Evidence from Decisions to Allow the Mexican Peso and Thai Baht to Float
Kathryn L. Dewenter
University of Washington - Michael G. Foster School of Business
Robert C. Higgins
University of Washington - Department of Finance and Business Economics
Timothy T. Simin
Pennsylvania State University
This paper estimates short horizon exchange rate sensitivity with an event study methodology. We look at stock price reactions to very large, unexpected exchange rate changes: the decisions to allow the Mexican peso and Thai baht to float. For both events, we find evidence of a statistically and economically significant contemporaneous relation. Our findings are consistent with the premise that the inability of much of the prior research to observe a contemporaneous relation between exchange rates and company value is due to methodological issues.
Number of Pages in PDF File: 33
Keywords: Exchange rate sensitivity, hedging, price reaction, event study
JEL Classification: F3, F4, F2working papers series
Date posted: April 18, 2002
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