A Re-Examination of Exchange Rate Exposure

11 Pages Posted: 28 Dec 2006 Last revised: 21 Oct 2010

See all articles by Kathryn M.E. Dominguez

Kathryn M.E. Dominguez

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER)

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2001

Abstract

Finance theory suggests that changes in exchange rates should have little influence on asset prices in a world that has become increasingly with integrated capital markets. Indeed, the existing literature examining the relationship between international stock prices and exchange rates finds little evidence of systematic exchange rate exposure. We argue in this paper that the absence of evidence may be due to restrictions imposed on the sample of data and the empirical specifications used in previous studies. We study a broad sample of firms in eight countries over an eighteen-year period. We find that firm-level and industry-level share values are significantly influenced by exchange rates. Further, we do not find evidence that exchange rate exposure is falling (or becoming less statistically significant) over time. Our results suggest that significant firm, industry and country-specific differences remain even as financial markets become more and more 'integrated'.

Suggested Citation

Dominguez, Kathryn M.E. and Tesar, Linda L., A Re-Examination of Exchange Rate Exposure (February 2001). NBER Working Paper No. w8128. Available at SSRN: https://ssrn.com/abstract=260541

Kathryn M.E. Dominguez (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

Lorch Hall
Ann Arbor, MI 48109
United States
313-764-3490 (Phone)
734-763-9181 (Fax)

HOME PAGE: http://www-personal.umich.edu/~kathrynd/

National Bureau of Economic Research (NBER)

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Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-763-2254 (Phone)
734-764-2769 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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