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The foreign exchange exposure of UK non-financial firms: A comparison of market-based methodologies

Agyei-Ampomah, Sam, Mazouz, Khelifa ORCID: and Yin, Shuxing 2013. The foreign exchange exposure of UK non-financial firms: A comparison of market-based methodologies. International Review of Financial Analysis 29 , pp. 251-260. 10.1016/j.irfa.2012.05.006

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We use a sample of 269 UK non-financial firms to study the sensitivity of foreign exchange exposure, and its determinants, to the different estimation methods. The standard Jorion's model suggests that 14.93% (30.50%) of the firms in our sample are exposed directly or indirectly to the fluctuations in the TWC (the US$, the Euro or the JP¥). However, the exposure increases substantially to 85.13% (96.65%) when time varying exposure regressions with orthogonalized market returns are used. We also show that the determinants of currency exposure are model-dependent. While the cross-sectional results suggest very little or no relationship between firm-specific factors and currency exposure, the explanatory power of these factors increase when data is pooled across firms and time.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Uncontrolled Keywords: Foreign exchange exposure; Currency risk; Panel estimation
Publisher: Elsevier
ISSN: 1057-5219
Last Modified: 25 Oct 2022 08:58

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