Global Engagement and Returns Volatility

20 Pages Posted: 8 Nov 2016

See all articles by Sourafel Girma

Sourafel Girma

Nottingham University Business School

Sandra Lancheros Torres

Leeds University Business School (LUBS) - Division of Economics

Alejandro Riano

University of Nottingham - Faculty of Law and Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

This paper finds that a greater reliance on foreign market sales increases the volatility of firms’ stock returns, using high‐frequency data for publicly listed Japanese manufacturing firms over the period 2000–10. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates (horizontal foreign direct investment), have both a positive and economically significant effect on firm‐level volatility. We find, however, that increasing the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in 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 can be an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty.

Suggested Citation

Girma, Sourafel and Lancheros Torres, Sandra and Riano, Alejandro, Global Engagement and Returns Volatility (December 2016). Oxford Bulletin of Economics and Statistics, Vol. 78, Issue 6, pp. 814-833, 2016. Available at SSRN: https://ssrn.com/abstract=2866092 or http://dx.doi.org/10.1111/obes.12150

Sourafel Girma (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

Sandra Lancheros Torres

Leeds University Business School (LUBS) - Division of Economics ( email )

Leeds LS2 9JT
United Kingdom

Alejandro Riano

University of Nottingham - Faculty of Law and Social Sciences ( email )

Nottingham, NG8 1BB
United Kingdom

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