Exchange Rate and Interest Rate Exposure of UK Industries Using First-Order Autoregressive Exponential GARCH-in-Mean (EGARCH-M) Approach
Olugbode, M. El-Masry, A.A. and Pointon, J. (2014). Exchange Rate and Interest Rate Exposure of UK Industries Using AR(1)- EGARCH-M Approach, Manchester School Journal, Vol. 82(4), pp. 409-464.
Posted: 22 Oct 2018
Date Written: July 1, 2014
Abstract
We examine the sensitivity of 31 UK non-financial industries to exchange and interest rate exposure from 1990 to 2006 using first-order autoregressive exponential GARCH-in-mean (EGARCH-M) model. We find that the stock returns of UK industries are more affected by long-term interest rate risk than exchange rate risk and short-term interest rate risk. Moreover, the euro introduction decreases exchange and interest rate exposure and competitive industries exhibit higher returns volatility than concentrated industries. Furthermore, for most UK industries: increased risk does not necessarily lead to an increase in returns and persistence of volatility is much higher in some industries than others.
Keywords: Exchange Rate Exposure, Interest Rate Exposure, Euro Introduction, GARCH Models, UK Industries
JEL Classification: C32, F31, G32
Suggested Citation: Suggested Citation