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

Sam Agyei-Ampomah, Khelifa Mazouz and Shuxing Yin

International Review of Financial Analysis, 2013, vol. 29, issue C, 251-260

Abstract: 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.

Keywords: Foreign exchange exposure; Currency risk; Panel estimation (search for similar items in EconPapers)
JEL-codes: F23 F31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:29:y:2013:i:c:p:251-260

DOI: 10.1016/j.irfa.2012.05.006

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