The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APTmodelling

Horst Entorf and Gösta Jamin

The IUP Journal of Applied Economics, 2005, vol. IV, issue 6, 19-33

Abstract: We estimate the impact of dollar changes on the value of German DAX corporations, using APT-modelling for the period 1977 - 1995. Several macroeconomic risk factors, including the dollar and a residual market factor representing the general market risk, are specified. The general notion is that the export-oriented German companies should benefit from increasing dollar values. We find time-varying dollar exposure presumably depending on the prevailing trade regime. Dollar sensitivity is positive as expected in periods with a positive trade balance, whereas it turns negative in periods with a negative trade balance (e.g., in the first half of the 1980s). APT-modelling simultaneously considers exchange rate exposure and risk-premia of macroeconomic risk factors, the latter also being unstable over time.

Date: 2005
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Related works:
Working Paper: The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APT-modelling (2008)
Working Paper: The Dollar and the German Stock Market: determination of exposure to and pricing of exchange rate risk using APT-Modeling (2005)
Working Paper: The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APT-modelling (2003)
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