40 Pages Posted: 20 Jan 2016
Date Written: December 16, 2015
This paper uses high-frequency data for publicly-listed Japanese manufacturing firms over the period 2000 to 2010 to show that a greater reliance on foreign market sales increases the conditional volatility of firms' stock returns. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates, have both a positive and economically significant effect on firm-level volatility, although an increase in the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in firms' export intensity. We also uncover evidence consistent with the notion that firms' need to use external finance to cover the substantial costs involved in reaching foreign consumers is an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty.
Keywords: volatility, stock returns, exports, FDI, external finance dependence, Japan
JEL Classification: F360, F140, F230, G100
Suggested Citation: Suggested Citation
Girma, Sourafel and Lancheros Torres, Sandra and Riaño, Alejandro, Global Engagement and Returns Volatility (December 16, 2015). CESifo Working Paper Series No. 5650. Available at SSRN: https://ssrn.com/abstract=2718883