학회소식
[2004년 제 2차] Measuring Currency Exposure: Empirical issues
작성자 : 관리자
조회수 : 932
게시일 :
2004-05-25
In this study, we investigate the importance of choosing an appropriate proxy for exchange rate when estimating currency exposure. First, we demonstrate that the commonly used trade-weighted index (TWEX) is not an appropriate proxy for relevant exchange rates. Problems associated with TWEX are discussed. To overcome the TWEX problems, we propose two alternative proxies for exchange rate: (1) time-varying firm-specific exchange rate indices based on firm’s foreign activities and (2) time-varying industry-specific exchange rate indices based on firm’s foreign competition. We compare the performance of these two alternatives with that of the TWEX. In particular, we show that both of the alternative exchange rate indices explain more of stock returns variation than the TWEX does. Also, they significantly increase the stability of the exposure coefficient. More importantly, the TWEX and the new indices identify different groups of exposed firms. About half of the exposed firms using the TWEX index are not exposed when using the new indices and about half of the exposed firms using the new indices are not exposed when using the TWEX index. We show that the widely used exchange rate index (TWEX) frequently identifies unexposed firms as being exposed and ignores some of the supposedly exposed firms.
