The Effect of Intervaling on the Foreign Exchange Exposure of Australian Stock Returns

33 Pages Posted: 8 Jul 2015

See all articles by Amalia Di Iorio

Amalia Di Iorio

La Trobe Business School

Robert W. Faff

University of Queensland

Date Written: July 7, 2015

Abstract

This article analyzes the impact of movements in the Australian dollar/Japanese yen (AUDJPY) and the Australian dollar/US dollar (AUDUSD) exchange rates on the returns of the Australian equities market. Specifically, this paper investigates the nature of exchange rate exposure across increasing return measurement intervals, enabling an examination of both its short-term and its long-term effect on stock returns. Consistent with previous literature, considerable evidence of long-term exchange rate exposure is found. Further, it is found that in the long-term the Australian equities market in general is exposed to fluctuations in the AUDJPY, while only some Australian industries are exposed to movements in the AUDUSD. Finally, convincing evidence in terms of the determinants of foreign exchange exposure is not found.

Keywords: Australian stock market; exchange rate risk; intervaling

JEL Classification: G12, G15

Suggested Citation

Di Iorio, Amalia and Faff, Robert W., The Effect of Intervaling on the Foreign Exchange Exposure of Australian Stock Returns (July 7, 2015). Multinational Finance Journal, Vol. 5, No. 1, p. 1-33, 2001. Available at SSRN: https://ssrn.com/abstract=2627628

Amalia Di Iorio (Contact Author)

La Trobe Business School ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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