Exchange Rate Variability and the Riskiness of U.S. Multinational Firms:Evidence from the Breakdown of the Bretton Woods System

Eli Bartov, Gordon Bodnar and Aditya Kaul

No 5323, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study assesses the impact of exchange rate variability on the riskiness of U.S. multinational firms by examining the relation between exchange rate variability and stock return volatility and by decomposing this relation into components of systematic and diversifiable risk. Focusing on two periods around the 1973 switch from fixed to floating exchange rates, we find a significant increase in the volatility of U.S. multinational monthly stock returns corresponding to the period of increased exchange rate variability. This increase in stock return volatility is also significant relative to the increase in stock return volatility for firms in three control samples. Using a single factor market model, we show this increase in total volatility led to a significant increase in market risk (beta) for the multinational firms relative to the control samples between the two periods. Collectively, these results suggest that the increase in exchange rate variability after 1973 was perceived by investors to be associated with an increase in the riskiness of cash flows of multinational firms that required compensation in terms of higher expected returns.

JEL-codes: F23 F31 (search for similar items in EconPapers)
Date: 1995-10
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Bartov, Eli, Gordon M. Bodnar and Aditya Kaul. "Exchange Rate Variability And The Riskiness Of U.S. Multinational Firms: Evidence From The Breakdown Of The Bretton Woods System," Journal of Financial Economics, 1996, v42(1,Sep), 105-132.

Downloads: (external link)
http://www.nber.org/papers/w5323.pdf (application/pdf)

Related works:
Journal Article: Exchange rate variability and the riskiness of U.S. multinational firms: Evidence from the breakdown of the Bretton Woods system (1996)
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:nbr:nberwo:5323

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5323

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).