Emerging Market Exchange-Rate Exposure

28 Pages Posted: 15 Nov 2007

See all articles by Timothy K. Chue

Timothy K. Chue

Hong Kong Polytechnic University

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2007

Abstract

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

Chue, Timothy K. and Cook, David E., Emerging Market Exchange-Rate Exposure (November 2007). Available at SSRN: https://ssrn.com/abstract=1029911 or http://dx.doi.org/10.2139/ssrn.1029911

Timothy K. Chue (Contact Author)

Hong Kong Polytechnic University ( email )

School of Accounting & Finance
Hung Hom
Kowloon
Hong Kong
(852) 2766-4995 (Phone)

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

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