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
Date Written: March 2002
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: Suggested Citation