The Foreign Exchange Exposure of UK Non-Financial Firms: A Comparison of Market-Based Methodologies

28 Pages Posted: 19 Aug 2012

See all articles by Sam Agyei-Ampomah

Sam Agyei-Ampomah

Cranfield University - School of Management

Khelifa Mazouz

University of Bradford - School of Management

Shuxing Yin

University of Sheffield - School of Management

Date Written: April 2, 2012

Abstract

We use a sample of 269 UK non-financial firms to study the sensitivity of foreign exchange exposure, and its determinants, to the different estimation methods. The standard Jorion’s model suggests that 14.93% (30.50%) of the firms in our sample are exposed directly or indirectly to the fluctuations in the TWC (the US$, the Euro or the JP¥). However, the exposure increases substantially to 85.13% (96.65%) when time varying exposure regressions with orthogonalized market returns are used. We also show that the determinants of currency exposure are model-dependent. While the cross-sectional results suggest very little or no relationship between firm-specific factors and currency exposure, the explanatory power of these factors increase when data is pooled across firms and time.

Keywords: Foreign exchange exposure, Currency risk, Panel estimation

JEL Classification: F31, F23

Suggested Citation

Agyei-Ampomah, Sam and Mazouz, Khelifa and Yin, Shuxing, The Foreign Exchange Exposure of UK Non-Financial Firms: A Comparison of Market-Based Methodologies (April 2, 2012). International Review of Financial Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2132050

Sam Agyei-Ampomah (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom
+441234754375 (Phone)

HOME PAGE: http://www.som.cranfield.ac.uk/som/p19638/People/Faculty/Academic-Faculty-Listing-A-Z/Dr-Sam-Agyei-A

Khelifa Mazouz

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Shuxing Yin

University of Sheffield - School of Management ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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