Investigating sources of unanticipated exposure in industry stock returns

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Title: Investigating sources of unanticipated exposure in industry stock returns
Authors: Bredin, DonalHyde, Stuart
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Date: 2009
Online since: 2010-11-25T14:27:29Z
Abstract: This paper investigates the degree of both foreign exchange rate and interest rate exposure of industry level portfolios in the G7. Our paper draws on the efficient market hypothesis and examines the extent of unexpected foreign exchange (and interest rate) exposure rather than the standard approach of focusing purely on the change in foreign exchange (and interest rate) exposure. The results from our baseline regressions are consistent with those previously found in the literature that there is little evidence of exchange rate exposure in most markets - this is the exchange rate exposure puzzle. The second critical element of our analysis is that we investigate the sources of the exposure and examine the existence of indirect levels of both foreign exchange and interest rate exposure. The findings of exposure to foreign exchange rates and interest rates are extensive for industry sectors in the G7 economies when we take account of the possible channels of influence. Results indicate key differences between countries in terms of the relative importance of these cash flow and discount rate channels.
Funding Details: Not applicable
Type of material: Working Paper
Publisher: University College Dublin. School of Business. Centre for Financial Markets
Series/Report no.: Centre for Financial Markets working paper series; WP 09 05
Keywords: Foreign exchangeExposureInterest ratesStock returnsInternational finance
Subject LCSH: Foreign exchange rates
Interest rates
Efficient market theory
Capital market--Group of Seven countries
International finance
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Centre for Financial Markets Working Papers

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