Exchange Rate Exposure of Chinese Firms at the Industry and Firm level

Bo Tang

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the exchange rate exposure of Chinese firms at the industry and firm level based on the conventional capital asset pricing model (CAPM) framework. At the industry level, the dynamic conditional correlation MGARCH (DCC MGARCH) estimates demonstrate that the market model and three-factor model are appropriate for exposure measurements, and industry returns are more likely to be exposed to unanticipated changes in the real exchange rate and the trade-weighted effective exchange rate, particularly for manufacturing industries. At the firm level, although the seemingly unrelated regression (SUR) estimates vary across markets, it is apparent that there is a relationship between firm size and exposure effects, which also show that lagged exchange rate changes have significant exposure effects on firm returns. This study finally suggests that non-financial firms should set up special commissions to hedge currency risks of their future cash flows.

Keywords: exchange rate exposure; Chinese firms; industry and firm level; dynamic conditional correlation MGARCH (DCC MGARCH); seemingly unrelated regression (SUR). (search for similar items in EconPapers)
JEL-codes: C58 F31 G12 (search for similar items in EconPapers)
Date: 2014-12, Revised 2015-04
New Economics Papers: this item is included in nep-bec and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in Review of Development Economics 3.19(2015): pp. 592-607

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Related works:
Journal Article: Exchange Rate Exposure of Chinese Firms at the Industry and Firm Level (2015)
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