A firm level analysis of asymmetric response of U.S. stock returns to exchange rate movements

Afees Salisu, Kazeem Isah and Nnenna Ogbonnaya‐Orji

International Journal of Finance & Economics, 2022, vol. 27, issue 1, 1220-1239

Abstract: The extant studies on stock returns–exchange rate nexus have been suspected of aggregation bias, we therefore resolve to revisit the nexus using firm‐level data while also accounting for asymmetry. We utilize stock price data covering 326 firms listed in S&P500 index and organized into 11 sectors. We examine the probable asymmetric response of these firms to exchange rate movements using the nonlinear panel ARDL method which simultaneously accounts for any inherent asymmetry and heterogeneity effects and suitable for large N and Large T panels. We establish that asymmetry exists in the stock returns–exchange rate nexus predominantly in the short run. We further show that exchange rate appreciation (depreciation) produces primarily positive (negative) effects on stock returns. We also find that the positive impacts overwhelm the negative impacts in magnitude and statistical significance. Thus, returns on investment in U.S. stocks differ significantly between currency appreciation and depreciation and by implication investors seeking to maximize returns need to exercise some level caution when confronted with sharp swings in exchange rate particularly during turbulent periods. While the results are robust to data frequency and to an extent, the choice of foreign currency, they are sensitive to different market conditions.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1002/ijfe.2210

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:27:y:2022:i:1:p:1220-1239

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().