Asymmetric Currency Exposure of US Bank Stock Returns
Journal of Multinational Financial Management, Volume 15, Issues 4–5, Pages 455-472, 2005
Posted: 28 Feb 2021
Date Written: January 2, 2005
Most of previous studies have not been successful in finding significant currency exposure. One possible explanation for this failure is that these studies ignore the asymmetric relationship between the value of a firm and exchange rate. Consequently, in this paper, I explore the possibility of asymmetric currency exposure using US bank stocks. The empirical results show that more than 80% of the sample are significantly exposed to exchange rate changes in a asymmetric way based on the tests of multi-factor model with multivariate GARCH parameterization. This empirical finding is robust to whether contemporaneous or lagged exchange rates changes are used to estimate the model. The strong evidence of asymmetric currency exposure suggests that both asymmetry and conditional heteroskedasticity play important roles in estimating currency exposure.
Keywords: Asymmetric currency exposure, Bank, Multivariate GARCH
JEL Classification: C32, G12, G21
Suggested Citation: Suggested Citation