Exposure and Markups

George Allayannis and Jane Ihrig

The Review of Financial Studies, 2001, vol. 14, issue 3, 805-35

Abstract: This article examines how to properly specify and test for factors that affect exchange-rate exposure. Starting from theoretical underpinnings and a sample of U.S. manufacturing industries between 1979 and 1995, we find that 4 of 18 industry groups are significantly exposed to exchange-rate movements through the effect of industry competitive structure, export share, and imported input share. On average, a 1% appreciation of the dollar decreases the return of the average industry by 0.13%. Consistent with our model's predictions, as an industry's markups fall (rise), its exchange-rate exposure increases (decreases). Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2001
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The Review of Financial Studies is currently edited by Itay Goldstein

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