Asian Foreign Exchange Risk Exposure

33 Pages Posted: 18 May 2004

See all articles by Aline Muller

Aline Muller

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

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

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

Muller, Aline and Verschoor, Willem F. C., Asian Foreign Exchange Risk Exposure (January 2004). Available at SSRN: https://ssrn.com/abstract=493262 or http://dx.doi.org/10.2139/ssrn.493262

Aline Muller

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

Willem F. C. Verschoor (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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