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

Horst Entorf and Gösta Jamin

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

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: 2008
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Published in Darmstadt Discussion Papers in Economics . 127 (2008)

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Related works:
Journal Article: The dollar and the German stock market: determination of exposure to and pricing of exchange rate risk using APTmodelling (2005)
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)
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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