Abstract

http://ssrn.com/abstract=968179
 
 

References (53)



 


 



Using Survey Data to Resolve the Exchange Risk Exposure Puzzle: Evidence from U.S. Multinational Firms


Willem F. C. Verschoor


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Aline Muller


HEC Management School University of Liège; Maastricht University - Limburg Institute of Financial Economics (LIFE)

Ron Jongen


Dutch Central Bank (DNB)

April 2009

EFA 2007 Ljubljana Meetings Paper

Abstract:     
While in previous literature foreign currency exposure is estimated to be surprisingly small and insignificant, we question in this paper the rationality assumption and show that the traditional use of realized exchange rate changes to approximate unexpected currency shocks leads to a strong underestimation of the influence that exchange rates play in determining firm valuations. In light of a unique survey data base of individual exchange rate expectations, we distinguish between 'realized' and 'unexpected' foreign currency movements and find that half of our sample of 935 U.S. firms with real operations in foreign countries is significantly exposed to 'unexpected' exchange rate movements. In line with previously reported results, foreign exchange risk exposure is found to become increasingly perceptible when the return horizon is lengthened. The difference between the exposure to 'realized' versus 'unexpected' exchange rate movements is however decreasing when lengthening the horizon, suggesting that the more market participants disagree about the future path of currency values, the less investors and/or managers are likely to use the publicly available forecasts in their pricing and hedging decisions.

Number of Pages in PDF File: 32

Keywords: foreign exchange risk, survey-based exchange rate expectations, heterogeneity, U.S. multinational firms

JEL Classification: F3, G12

working papers series


Download This Paper

Date posted: March 5, 2007 ; Last revised: August 26, 2009

Suggested Citation

Verschoor, Willem F. C. and Muller, Aline and Jongen, Ron, Using Survey Data to Resolve the Exchange Risk Exposure Puzzle: Evidence from U.S. Multinational Firms (April 2009). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: http://ssrn.com/abstract=968179 or http://dx.doi.org/10.2139/ssrn.968179

Contact Information

Willem F. C. Verschoor
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands
Aline Muller (Contact Author)
HEC Management School University of Liège ( email )
B-4000 Liege
Belgium
+3242327435 (Phone)
+3242327376 (Fax)
Maastricht University - Limburg Institute of Financial Economics (LIFE) ( email )
P.O. Box 616
Maastricht, 6200 MD
Netherlands
Ron Jongen
Dutch Central Bank (DNB) ( email )
P.O. Box 98
Amsterdam, 1000 AB
Netherlands
Feedback to SSRN


Paper statistics
Abstract Views: 972
Downloads: 175
Download Rank: 100,160
References:  53

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.423 seconds