First and Second Moment Exchange Rate Exposure: Evidence from U.S. Stock Returns

Posted: 23 Jun 2003

See all articles by Gregory Koutmos

Gregory Koutmos

Fairfield University - Charles F. Dolan School of Business

Anna D. Martin

Fairfield University - Charles F. Dolan School of Business

Abstract

This study investigates the impact of first and second moment exchange rate exposure on the daily returns of nine U.S. sectors from 1992 to 1998. In 17.8% of the cases we detect significant first-moment exposure when contemporaneous exchange rates are used. Moreover, 25.0% of the significant exposures are asymmetric. When the model utilizes one-day lags, 42.2% of the cases are significant and 79.0% are asymmetric. Regarding second-moment exposure, the financial sector displays pervasive sensitivity to exchange rate volatility when using contemporaneous and lagged models. This result is reasonable, assuming that revenues from the sale of derivative products increase with currency volatility.

JEL Classification: F31

Suggested Citation

Koutmos, Gregory and Martin, Anna D., First and Second Moment Exchange Rate Exposure: Evidence from U.S. Stock Returns. Available at SSRN: https://ssrn.com/abstract=395923

Gregory Koutmos (Contact Author)

Fairfield University - Charles F. Dolan School of Business ( email )

Dolan School of Business
N. Benson Road
Fairfield, CT 06824
United States
203-254-4000 Ext. 2832 (Phone)

Anna D. Martin

Fairfield University - Charles F. Dolan School of Business ( email )

Dolan School of Business
N. Benson Road
Fairfield, CT 06824
United States
203-254-4000 Ext. 2881 (Phone)
203-254-4105 (Fax)

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