Asymmetric Exchange Rate Exposure - Research in Southeast Asian Countries
The study aims to analyse the impact of exchange rate exposure on stock returns in six countries representative of Southeast Asia, including Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam from 2009 to 2014. Both nominal and real exchange rates are taken into account for evaluating exchange rate fluctuations via panel data. In order to achieve this goal, a panel regressive estimation approach is proposed in which a GLS model is firstly used to treat heteroscedasticity in the panel data and, then, a GMM estimator is employed to ensure the consistency of the estimates. The results point out that the exchange rate exposure of these countries is asymmetric. At market level, for a rise in the exchange rate (or local currency depreciates), the average stock returns tend to decrease. However, due to the favourable impact of currency depreciation on the net export position, the reduction speed of stock returns is faster than the rising speed of the exchange rate.
Alder, M., and Dumas, B. (1984), 'Exposure to currency risk: definition and measurement', Financial Management, 13, 41-50
Al-Shboul, M., and Anwar, S. (2014), 'Foreign exchange rate exposure: Evidence from Canada', Review of Financial Economics, 23, 18-29
Arellano, M., and Bond, S. (1991), 'Some tests of specification for panel data: Monte carlo evidence and an application to employment equations', Review of Economic Studies, 58, 277-97
Baltagi, B. (2008), Econometric Analysis of Panel Data, PLACE: John Wiley & Sons
Bartram, S., and Bodnar, G. (2012), 'Crossing the lines: The conditional relation between exchange rate exposure and stock returns in emerging and developed markets', Journal of International Money and Finance, 31, 766-92
Bekaert, G., and Harvey, C. (1995), 'Time varying world market integration', Journal of Finance, 50 (2), 403-44
Chkili, W., Aloui, C., and Nguyen, D. (2012), 'Asymmetric effects and long memory in dynamic volatility relationships between stock returns and exchange rates', Journal of International Financial Markets, Institutions & Money, 22, 738-57
Chue, T., and Cook, D. (2008), 'Emerging market exchange rate exposure', Journal of Banking & Finance, 32, 1349-62
Hekman, C. (1983), 'Measuring Foreign Exchange Exposure: A Practical Theory and Its Application', Financial Analysts Journal, 39 (5), 59-65
Hsiao, C. (1986), Analysis of Panel Data, Cambridge: Cambridge University Press
Im, K., Pesaranb, M., and Shin, Y. (2003), 'Testing for unit roots in heterogeneous panels', Journal of Econometrics, 115 (1), 53-74
Koutmos, G., and Martin, A. (2003). 'Asymmetric exchange rate exposure: theory and evidence', Journal of International Money and Finance, 22 (3), 365-83
Levin, A., Lin, C. F., and Chu, C. S. (2002), 'Unit root tests in panel data: Asymptotic and finite-sample properties', Journal of Econometrics 108, 1-24
Lin, C. H. (2011), 'Exchange rate exposure in the Asian emerging markets', Journal of Multinational Financial Management, 224-38
Tsai, I. C. (2012), 'The relationship between stock price index and exchange rate in Asian markets: A quantile regression approach', Journal of International Financial Markets, Institutions & Money, 22, 609-21
Ye, M., Hutson, E., and Muckley, C. (2014), 'Exchange rate regimes and foreign exchange exposure: The case of emerging market firms', Emerging Markets Review, 21, 156-82
Copyright (c) 2017 Exchanges: the Warwick Research Journal
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (CC-BY), which permits use and redistribution of the work provided that the original author and source are credited, a link to the license is included, and an indication of changes which were made. Third-party users may not apply legal terms or technological measures to the published article which legally restrict others from doing anything the license permits.
If accepted for publication authors’ work will be made open access and distributed under a Creative Commons Attribution (CC-BY) license unless previously agreed with Exchanges’ Editor-in-Chief prior to submission.
Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work. (see: The Effect of Open Access)