Exchange Rate Exposure: An Empirical Application for Textile Industry on the Istanbul Stock Exchange

Sadýk Cukur and Yusuf Volkan Topuz

Istanbul Stock Exchange Review, 2005, vol. 8, issue 30, 19-30

Abstract: Exchange rate exposure has been one of the most important subject in international finance after the introduction of the flexible exchange rate system at the beginning of 1970s. Firms’ financial positions are affected due to unexpected and continuous fluctuations in foreign exchange rates. The changes in economic variables will affect the value of the firm unavoidably. Therefore, the relationship between foreign exchange rates and the market value of the firm should be investigated. We present a study on the Istanbul Stock Exchange (ISE) Market for textile industry at the firm level. We construct a sectoral real effective exchange rate instead of general real effective exchange rates. We attempt to explain the exposure with this explanatory variable. We also use lead models instead of contemporaneous or lagged model and find that lead model shows a clear exposure effect for the textile industry.

Date: 2005
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