 Investigating sources of unanticipated exposure in industry stock returnsJournal of Banking & Finance, 2011, vol. 35, issue 5, 1128-1142 Abstract: This paper investigates the sources of both foreign exchange rate and interest rate exposure of industry level portfolios in the G7, decomposing exposure into cash flow and discount rate effects. Initial examination of the degree of exposure on industry returns produces results consistent with the prior literature: that there is little evidence of exchange rate exposure in most industries - the exchange rate exposure puzzle. However, rather than relying solely on the sensitivity of industry returns, we examine the cash flow sensitivity to foreign exchange exposure, of primary interest to firm managers. Critically, decomposing the exposure into cash flow and discount rate components unlocks the exact extent and nature of exposure. Our results show industries have significant cash flow and discount rate exposures. These exposures increase with the level of trade openness and the spread between permanent cash flow exposure and transitory discount rate exposure widens. Keywords: Foreign; exchange; Exposure; Interest; rates; Stock; returns; International; finance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:5:p:1128-1142 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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