Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland

Multinational Finance Journal, 2013, Vol. 17, No 1/2, pp. 1-47.

AFFI/EUROFIDAI, Paris December 2009 Finance International Meeting AFFI - EUROFIDAI

44 Pages Posted: 9 Oct 2009 Last revised: 28 Mar 2015

See all articles by ABS Gulati

ABS Gulati

Hanken School of Economics

Johan Knif

Hanken School of Economics / Department of Finance and Statistics

James W. Kolari

Texas A&M University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2013

Abstract

This study empirically examines how exchange rates affect firms’ stock returns in small, export-oriented countries that compete closely with one another. Specifically, controlling for cross-country sector and industry effects between Finland and Sweden, we test the impact of exchange rate shocks on Finnish stock returns. In general, empirical tests reveal statistically significant exchange rate exposure of Finnish stock prices. Comparing pre- versus post-euro periods, equities’ exchange rate exposure is much stronger after the introduction of the euro. Further results show that Finnish and Swedish sector and industry stock values positively co-move with another, which implies market integration as opposed to competitiveness. However, interaction variables reveal that their co-movement is conditional on exchange rate movements for some sectors and industries, especially in the post-euro period. We conclude that countries with small, open economies can be prone to exchange rate movements that (dis)advantage some firms relative to competing firms in other countries.

Keywords: Exchange Rate Exposure, Stock Returns, Cross-Country Industry Competition, Market Integration, Pre- and Post-euro

JEL Classification: F15, F31, F36, G10, G11, G15

Suggested Citation

Gulati, Anand Bir S and Knif, Johan Anders and Kolari, James W., Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland (May 15, 2013). Multinational Finance Journal, 2013, Vol. 17, No 1/2, pp. 1-47.; AFFI/EUROFIDAI, Paris December 2009 Finance International Meeting AFFI - EUROFIDAI. Available at SSRN: https://ssrn.com/abstract=1484572 or http://dx.doi.org/10.2139/ssrn.1484572

Anand Bir S Gulati (Contact Author)

Hanken School of Economics ( email )

Handelsesplanaden 2
Helsinki, FI-65101
Finland

Johan Anders Knif

Hanken School of Economics / Department of Finance and Statistics ( email )

P.O. Box 287
FIN-65101 Vasa
Finland
+358 50 589 2612 (Phone)
+358 6 3533 703 (Fax)

HOME PAGE: http://www.hanken.fi/staff/jknif/

James W. Kolari

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

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