The Unconditional and Conditional Exchange Rate Exposure of U.S. Firms
52 Pages Posted: 2 Apr 2011
Date Written: December 20, 2010
We re-examine the relationship between exchange rate movements and firm value. We estimate the exchange rate exposure of publicly listed U.S. firms clustered into eleven industries. Using a panel approach, we uncover statistically significant and sizable unconditional exposure. We also examine the dynamics of exchange rate exposure modeled as a function of business cycle indicators and firm characteristics. We find that exposure varies over time with macroeconomic and financial variables and increases during economic contractions. Deviations from the unconditional measure of exposure driven by the macroeconomic variables are economically meaningful.
Keywords: Foreign exchange rates, exposure, macroeconomic conditions, firm characteristics, business-cycle indicators
JEL Classification: F31, E32
Suggested Citation: Suggested Citation