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A Quest For More Reliable Estimates Of Exchange Rate Exposure
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Book Synopsis A Quest for More Reliable Estimates of Exchange Rate Exposure by : Prabhath Jayasinghe
Download or read book A Quest for More Reliable Estimates of Exchange Rate Exposure written by Prabhath Jayasinghe and published by . This book was released on 2014 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The noticeable dichotomy between the research and practice of exchange rate exposure management may be partly due to the fact that the degree, the direction and the significance of the exposure to currency risk vastly depend on the method of estimation and the proxies used. In this paper, we examine the impact of incorporating a few stylized facts of financial time series -- namely, time-varying volatility, leptokurtosis and asymmetric volatility -- and a possible indirect exposure effect on the magnitude, significance and the sign of exchange rate exposure coefficients. To this end, an asymmetric GARCH-type model whose residuals are assumed to be t-distributed is employed to estimate exchange rate exposure. We observe that the negligence of these stylized facts may lead to seriously under/over-estimated exposure coefficients. Incorporating the indirect exposure effect offers some useful insights too.
Book Synopsis Exchange Rate Exposure by : Kathryn M. Dominguez
Download or read book Exchange Rate Exposure written by Kathryn M. Dominguez and published by . This book was released on 2001 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we examine the relationship between exchange rate movements and firm value. We estimate the exchange rate exposure of publicly listed firms in a sample of eight (non-US) industrialized and emerging markets, and find that a significant percentage of these firms are indeed exposed. These results differ substantially from most previous studies in the literature that find little evidence of exposure. In robustness checks we find that: (i) the choice of exchange rate matters, and using the trade-weighted exchange rate is likely to understate the extent of exposure, (ii) conditioning on the value-weighted vs. the equally-weighted market index has little effect on estimated exposure, while conditioning on the international index does change the estimate of exposure, (iii) the extent of exposure is not a result of a spurious correlation between random variables with high variances, (iv) exposure increases with the return horizon, (v) within a country and within an industry, exposure coefficients are roughly evenly split between positive and negative values, (vi) averaging across the (absolute value of the) significant exposure coefficients in our sample of countries, we find an exposure coefficient of about 0.5, (vii) the extent of exposure is not sensitive to the sample period, but the set of firms that is exposed does vary over time, and (viii) the sign of the exposure coefficients changes across subperiods for about half of the firms of our sample. We find that exposure is not systematically related to firm size, industry affiliation, multinational status, foreign sales, international assets or industry-level trade.
Book Synopsis Estimating Exchange Rate Exposures by : Gordon M. Bodnar
Download or read book Estimating Exchange Rate Exposures written by Gordon M. Bodnar and published by . This book was released on 2000 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: From a sample of 910 U.S. firms over the period 1977 1996, we find that structure of the empirical model has significant impacts on resulting estimates of exchange rate exposures from equity returns. While lengthening the return horizon has minimal impact on exposure estimates, the inclusion of a market portfolio in the specification results in significant changes to the exposure estimates. We further demonstrate that different definitions of the market portfolio result in important differences in the overall distribution of exposure estimates and the interpretations of the sign, size, and significance of many firms' exposures. The source of the exposure differences across market portfolios is due to a strong size-exposure relation for U.S. firms. Surprisingly, this size-exposure relation does not appear to be driven by an underlying correlation between size and foreign cash flow position of the firms. An alternative model specification using matched CRSP capital-based size portfolios as controls for market movements in the exposure model produces firm-level exposures with a stronger relation to foreign cash flows and less of a correlation with firm size.
Book Synopsis Cracks in the Crystal Ball by : Aline Muller
Download or read book Cracks in the Crystal Ball written by Aline Muller and published by . This book was released on 2014 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The central issue of this paper is whether stock prices are exposed to total exchange rate movements -- as traditionally measured -- or to revisions in expected future exchange rate movements and unanticipated currency shocks, and by how much of each. Based on a sample of 1675 U.S. firms operating in Europe and in Japan our results reveal that disaggregating total exchange rate changes in expected and unexpected exchange rate movements leads to a more accurate and more intuitive measurement of firms' exchange rate exposure. This confirms the natural expectation that a significant proportion of multinational's stock price movements can be explained by a revision of expectations about future exchange rate movements. Results suggest furthermore that the impact of a disaggregated exchange rate factor is stronger than the impact of previously suggested exchange rate factors.In addition, theory expects that investors lend more credibility to forecasts communicated by expert panels when they display a low dispersion, hinting to agreement among experts, than when they display a higher dispersion. When uncertainty is higher, and when the informational content of these forecasts may be considered as less meaningful, investors should be reluctant to incorporate experts' anticipations in stock market values. Based on our time-varying estimates of the probability of agreement among experts, we find concluding empirical evidence in favor of this hypothesis.
Book Synopsis The Risk Premium, Exchange Rate Expectations and the Forward Exchange Rate by : Stuart Landon
Download or read book The Risk Premium, Exchange Rate Expectations and the Forward Exchange Rate written by Stuart Landon and published by Department of Economics, University of Alberta. This book was released on 1999 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis International Corporate Finance by : Laurent L. Jacque
Download or read book International Corporate Finance written by Laurent L. Jacque and published by John Wiley & Sons. This book was released on 2019-10-30 with total page 851 pages. Available in PDF, EPUB and Kindle. Book excerpt: As globalization is redefining the field of corporate finance, international finance is now part and parcel of the basic literacy of any financial executive. This is why International Corporate Finance is a “must” text for upper-undergraduates, MBAs aspiring to careers in global financial services and budding finance professionals. International Corporate Finance offers thorough coverage of the international monetary system, international financing, foreign exchange risk management and cross-border valuation. Additionally, the book offers keen insight on how disintermediation, deregulation and securitization are re-shaping global capital markets. What is different about International Corporate Finance? Each chapter opens with a real-life mini-case to anchor theoretical concepts to managerial situations. Provides simple decision rules and “how to do” answers to key managerial issues. Cross-border Mergers & Acquisitions, Project Finance, Islamic Finance, Asian Banking & Finance are completely new chapters that no other textbooks currently cover. Accompanied with a comprehensive instructor support package which includes case studies, an Instructor’s Manual, PowerPoint slides, Multiple Choice Questions and more.
Book Synopsis PPP Strikes Back by : Mr. Haroon Mumtaz
Download or read book PPP Strikes Back written by Mr. Haroon Mumtaz and published by International Monetary Fund. This book was released on 2003-04-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When heterogeneity is properly taken into account, estimates of the real exchange rate half-life fall dramatically, to little more than one year, or significantly below Rogoff''s "consensus view" of three to five years. We show that corrected estimates are consistent with plausible nominal rigidities, thus, arguably, solving the PPP puzzle.
Book Synopsis Resolving the Exposure Puzzle by : Söhnke M. Bartram
Download or read book Resolving the Exposure Puzzle written by Söhnke M. Bartram and published by . This book was released on 2019 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical research predicts many firms should have sizeable exchange rate exposure. However, empirical research has not documented consistently strong relations between exchange rates and stock prices. To examine this discrepancy, we extend prior theoretical results to model a global firm's exchange rate exposure. Using this model and a global sample manufacturing firms from 16 countries, we show empirically that firms pass part of currency changes through to customers, utilize operational hedges (e.g., matching foreign sales with foreign production), and employ financial risk management strategies. We estimate that for a typical firm in our sample, pass-through and operational hedging each reduce exposure by 10% to 15%. Financial hedging with foreign currency debt, and to a lesser extent FX derivatives, appears to reduce exposure by about 40%. The combination of these factors reduces exchange rate exposures to observed levels.
Book Synopsis The Risk Premium, Exchange Rate Expectations, and the Forward Exchange Rate : Estimates for the Yen-dollar Rate by : Stuart Landon
Download or read book The Risk Premium, Exchange Rate Expectations, and the Forward Exchange Rate : Estimates for the Yen-dollar Rate written by Stuart Landon and published by . This book was released on 1999 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating Exchange Rate Exposures by : Gordon M. Bodnar
Download or read book Estimating Exchange Rate Exposures written by Gordon M. Bodnar and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that both return measurement horizon and model specification have noticeable impacts on estimates of exposure from equity prices for US firms. While increases in the return horizon lead to increases in the precision of the estimates, this effect is less significant than the impact of model structure. We demonstrate that the inclusion and of a market return variable and its particular construction has a dramatic influence on the sign and size of the exposures due to a strong relation between firm size and exposure for US firms. We propose using CRSP cap-based portfolios as the control for market factors and show that this produces exposures with stronger relation to foreign cash flows and correlations with firm size.
Book Synopsis Exchange Rate Exposure and Its Determinants by : Ahmed El-Masry
Download or read book Exchange Rate Exposure and Its Determinants written by Ahmed El-Masry and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Bank Quest written by and published by . This book was released on 2007 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Exchange Rate Dynamics and Model Uncertainty by : Edouard Tsague Djeutem
Download or read book Three Essays on Exchange Rate Dynamics and Model Uncertainty written by Edouard Tsague Djeutem and published by . This book was released on 2016 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: At least since Knight (1921), economists have suspected that the distinction between risk and ̀uncertainty' might be important in economics. However,Savage (1954) showed this distinction is meaningless if agents adhere to certain axioms, which seem to be normatively compelling. Savage's SubjectiveExpected Utility (SEU) model became the dominant paradigm in economics, and remains so to this very day. Still, suspicions that the distinction matters never really died. The Ellsberg Paradox (1961) first raised doubts about the SEU model. Then, Gilboa and Schmeidler (1989) showed how to modifySavage's axioms so that the distinction does matter. In their model, agents entertain a set of priors, and optimize against the worst-caseprior. Finally, Hansen and Sargent (2008) operationalized this new approach by linking it to the engineering literature on ̀robust control'. My dissertationapplies the Hansen-Sargent framework to the foreign exchange market. I show that if we think of market participants as confronting both uncertainty andrisk, then we can easily explain several well known empirical puzzles in the foreign exchange market.The second chapter of my dissertation, entitled "Robustness and Exchange Rate Volatility", was published in the Journal of International Economics in 2013, and is coauthored with my supervisor, Prof. Kenneth Kasa. This paper uses the monetary model of exchange rates. It assumes investors are aware of their own lack of knowledge about the economy. They respond to their ignorance strategically, by constructing forecasts that are robust to model misspecification. We show that revisions of robust forecasts are more sensitive to new information, and can easily explain observed violations of Shiller's variance bound inequality.The third chapter, entitled "Model Uncertainty and the Forward Premium Puzzle", was published in the "Journal of International Money and Finance" in 2014. It studies a standard two-country Lucas (1982) asset-pricing model. The main objective is to understand the determinants of observed excess return in the foreign exchange market. The paper shows that Hansen-Jagannathan (1991) volatility bounds can be attained with both reasonable degrees of risk aversion and empirically plausible detection error probabilities. Hence, excess returns in the foreign exchange market appear to be primarily driven by a ̀model uncertainty premium' rather than a risk premium.The fourth chaper, entitled "Robust Learning in the Foreign Exchange Market", was recently revised and resubmitted to the "Canadian Journal of Economics". Following Hansen and Sargent (2010), it assumes agents cope with uncertainty by both learning and by formulating robust decision rules. Agents entertain two competing models, differing by the persistence of consumption growth. As in my previous paper, agents continue to doubt the specification of each model. It shows that robust learning can not only explain unconditional risk premia in the foreign exchange market, but can also explain the cyclical dynamics of risk premia. In particular, an empirically plausible concern for model misspecification and model uncertainty generates a stochastic discount factor that uniformly satisfies the spectral Hansen-Jagannathan bound of Otrok et. al. (2007).
Book Synopsis Risk Management and Analysis by : Carol Alexander
Download or read book Risk Management and Analysis written by Carol Alexander and published by . This book was released on 1998 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: The author/editor has produced two stand-alone or companion volumes. Only one third of the original material remains. New Markets and Products begins with two chapters on emerging markets. The book then goes on to cover markets and products of increasing complexity: standard equity and interest rate derivatives, exotic options, swap (and swaptions), volatility trading and finally credit derivatives. The contributors are all acknowledged experts in their fields: Michael Howell, Mark Fox, Ian King, Chris Rogers, Andrew Street ...
Book Synopsis The Shocks Matter by : Kristin Forbes
Download or read book The Shocks Matter written by Kristin Forbes and published by . This book was released on 2018 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: A major challenge for monetary policy is predicting how exchange rate movements will impact inflation. We propose a new focus: directly incorporating the underlying shocks that cause exchange rate fluctuations when evaluating how these fluctuations “pass through” to import and consumer prices. A standard open-economy model shows that the relationship between exchange rates and prices depends on the shocks which cause the exchange rate to move. We build on this to develop a structural Vector Autoregression (SVAR) framework for a small open economy and apply it to the UK. We show that prices respond differently to exchange rate movements based on what caused the movements. For example, exchange rate pass-through is low in response to domestic demand shocks and relatively high in response to domestic monetary policy shocks. This framework can improve our ability to estimate how pass-through can change over short periods of time. For example, it can explain why sterling’s post-crisis depreciation caused a sharper increase in prices than expected, while the effect of sterling’s 2013-15 appreciation was more muted. We also apply this framework to forecast the extent of pass-through from sterling’s sharp depreciation corresponding to the UK’s vote to leave the European Union.
Book Synopsis Exchange Rate Risk Premium Estimation and an Analysis of Exchange Rate Pass-through Into Import Prices by : Sirui Wu
Download or read book Exchange Rate Risk Premium Estimation and an Analysis of Exchange Rate Pass-through Into Import Prices written by Sirui Wu and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Reliability of Professional Exchange Rate Forecasts by : Robert Schmidt
Download or read book On the Reliability of Professional Exchange Rate Forecasts written by Robert Schmidt and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The study analyses the characteristics of professional exchange rate forecasts for the Ĩ/US-$ rate. The results indicate that the quality of forecasts produced by professional economists is rather poor and incompatible with the rational expectations hypothesis. This dismal result is according to our analysis attributed to the fact that professional forecasts are to a large extend influenced by actual changes in exchange rates. A reasonable explanation for this behaviour can be derived from the behavioural finance literature. According to the anchoring heuristic decision processes are often dominated by available pieces of information even if they are obviously of no relevance.
