Asian Foreign Exchange Risk Exposure
33 Pages Posted: 18 May 2004
Date Written: January 2004
Abstract
This paper examines whether there exists any relationship between individual Asian firms' stock returns and fluctuations in foreign exchange rates. We find that about 25 percent of these firms experienced economically significant exposure effects to the U.S. dollar and 22.5 percent to the Japanese yen for the period January 1993 to January 2003. While there is time-variation in contemporaneous exposure effects at the individual firm level, the overall extent of exposure is not sample dependent; a depreciating (appreciating) Asian currency against foreign currencies has a net negative (positive) impact on Asian stock returns. The extent to which firms are exposed to exchange rate fluctuations varies with return horizons; short-term exposure seems to be relatively well hedged, where considerable evidence of long-term exposure is found. Firms with weak liquidity positions, in terms of high dividend payout ratios, or less profitable firms, tend to have smaller exposures. We also find that highly leveraged firms or firms with a lower quick ratio are more exposed to exchange rate risk.
Keywords: exchange risk, Asian multinational firms, hedging policies, intervaling, longterm exposure
JEL Classification: F3, G12
Suggested Citation: Suggested Citation
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