Emerging Market Exchange-Rate Exposure
28 Pages Posted: 15 Nov 2007
Date Written: November 2007
We estimate the exposure of emerging-market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange-rate movements, yet abstracts from the influence of confounding macroeconomic shocks. In the sub-period of 1999-2002, we find that depreciations tend to have a negative impact on emerging-market stock returns. In the sub-period of 2002-2006, this tendency has largely disappeared. Since we estimate the exchange-rate exposure of firms from different countries with a common set of instruments, we can make coherent, cross-country comparisons of their determinants. We find that the impact of various measures of debt on exchange-rate exposure, which is negative and significant in the early sub-period, becomes insignificant and even reverses sign in the recent sub-period.
Keywords: Exchange-rate exposure, Emerging market, International debt
JEL Classification: F31, F41, G12, G15
Suggested Citation: Suggested Citation