Is There a Contemporaneous Relation between Exchange Rates and Stock Prices? Evidence from Decisions to Allow the Mexican Peso and Thai Baht to Float

33 Pages Posted: 18 Apr 2002

See all articles by Kathryn L. Dewenter

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Robert C. Higgins

University of Washington - Department of Finance and Business Economics

Timothy T. Simin

Pennsylvania State University

Date Written: March 2002

Abstract

This paper estimates short horizon exchange rate sensitivity with an event study methodology. We look at stock price reactions to very large, unexpected exchange rate changes: the decisions to allow the Mexican peso and Thai baht to float. For both events, we find evidence of a statistically and economically significant contemporaneous relation. Our findings are consistent with the premise that the inability of much of the prior research to observe a contemporaneous relation between exchange rates and company value is due to methodological issues.

Keywords: Exchange rate sensitivity, hedging, price reaction, event study

JEL Classification: F3, F4, F2

Suggested Citation

Dewenter, Kathryn L. and Higgins, Robert C. and Simin, Timothy T., Is There a Contemporaneous Relation between Exchange Rates and Stock Prices? Evidence from Decisions to Allow the Mexican Peso and Thai Baht to Float (March 2002). Available at SSRN: https://ssrn.com/abstract=305759 or http://dx.doi.org/10.2139/ssrn.305759

Kathryn L. Dewenter (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Robert C. Higgins

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
306 Mackenzie Hall
Seattle, WA 98195
United States
206-543-4379 (Phone)
206-528-0340 (Fax)

Timothy T. Simin

Pennsylvania State University ( email )

University Park, PA 16802
United States
814-865-3457 (Phone)

HOME PAGE: http://timsimin.net

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