Using survey data to resolve the exchange risk exposure puzzle: Evidence from U.S. multinational firms

R. Jongen, A. Muller and Willem Verschoor

Journal of International Money and Finance, 2012, vol. 31, issue 2, 148-169

Abstract: This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of ‘realized’ and ‘unexpected’ currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts.

Keywords: Exchange risk exposure; Survey-based expectations; Heterogeneity; U.S. multinational firms (search for similar items in EconPapers)
JEL-codes: F3 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:2:p:148-169

DOI: 10.1016/j.jimonfin.2011.10.002

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