A Dynamic Analysis of Exchange Rate Exposure: The Impact of China's Renminbi

26 Pages Posted: 25 Jan 2016

See all articles by Pei‐Fen Chen

Pei‐Fen Chen

National Chi Nan University - Department of International Business Studies

Chien-Chiang Lee

Nanchang University

Chi‐Chuan Lee

Beijing Normal University (BNU)

Jing‐Xuan Huang

National Sun Yat-sen University - Department of Finance

Date Written: January 2016

Abstract

This study examines the impacts of unexpected exchange rate movements of Chinese renminbi (CNY/USD) on stock returns of Standard & Poor's 500 corporations. To gain better insight into the long‐standing exposure puzzle concerning the divergence between theoretical and empirical investigation and the critical issue regarding the determinants of exposure, the time variation and asymmetry property associated with foreign exchange exposure are further taking into account. We also broaden the scope of analysis to investigate unexpected risk exposure at 10 economic sectors in compliance with Global Industry Classification Standard. Unlike those from the static analysis or dynamic ones with the ordinary least squares model, the empirical findings provide additional concrete evidence that unexpected exchange rate exposure varies substantially across time and market circumstances when using the quantile regression with a rolling method. Furthermore, our dynamic analysis not only supports the existence of industrial effects across different economic sectors, but also provides strong evidence that financial factors, such as size, debt ratio and book to market ratio, have a significant impact on exposure.

Suggested Citation

Chen, Pei‐Fen and Lee, Chien-Chiang and Lee, Chi‐Chuan and Huang, Jing‐Xuan, A Dynamic Analysis of Exchange Rate Exposure: The Impact of China's Renminbi (January 2016). The World Economy, Vol. 39, Issue 1, pp. 132-157, 2016, Available at SSRN: https://ssrn.com/abstract=2720677 or http://dx.doi.org/10.1111/twec.12365

Pei‐Fen Chen (Contact Author)

National Chi Nan University - Department of International Business Studies

1, University Rd, Puli
Nantou 545
Taiwan

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Chi‐Chuan Lee

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

Jing‐Xuan Huang

National Sun Yat-sen University - Department of Finance

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

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