Literature Review
Introduction
Since the breakdown of Brettoon Woods system in the 1970s, movements of exchange rate has a bearing on investors, analyst, managers and shareholders. With the development of economics, Bradley and Moles (2002) said that companies were unaffected by currency movements. However, till now, many empirical investigation that the movements of exchange rate may not only affect firms’ value but also can influence expose to exchange rate risk from different competitiveness level of firms, or the foreign currencies impact the value of stocks. During these researches some studies find a significant effect of exchange rate changes while others do not. There are lots of studies focused on the USA, although some studies focused on other countries. Furthermore, most of previous studies examined the exchange rate exposure by the non-financial companies.
Literature Review
Firms-level exchange rate exposure samples often involved a certain minimum proportion of exports sales. However, multinational firms’ transaction is likely to be more exposed. Jorion代写留学作业提供代写Essay，代写Assignment，请联系QQ：949925041 (1990) examined the relationship between exchange rate fluctuations and stock returns made use of a sample of 287 multinationals of US firms from the period 1971 to 1987. To the end, he found there were 5% of his sample firms exhibited significant exposure. So the study obtained that there was a relationship between firm’s stock returns and exchange rate fluctuations over that period. To extend, Jorion also discovered that the proportion of foreign sales to total sales of a firm is positively related to the extent of exchange rate risk. Continued with research development, Jorion (1991) investigated whether exchange rate is a risk factor in the equity market that focused on the monthly stock returns in New York Stock Exchange (NYSE) of US multinational corporations from 1971 to 1987 and confirmed that even if there is no significant relationship between changes in exchange rates and stock market return, the heavy industries as exporters(Chemical, Machinery, Mining and Automotive, etc) are benefited from the increasing the value of the dollar ,while light industries as importers(Textiles, Apparel, Department stores, etc) are suffer from the increasing the value of dollar. After Jorion’s(1990,1991) empirical, Amihud’s (1994) study exploited 32 US largest exporting firms’ combined with stock returns movements in the trade-weight exchange rate of the US dollar during the period 1979-1988. He separated two parts---the monthly and quarterly intervals. To the end, it reported that there is no significant coefficient about the relationship between the exchange rate and equity returns by monthly for these 32 companies. What is more, it approved that there is a weak significant relationship between the exchange rate movement and the stock return. What is more, as the same period, Walsh (1994) suggested that the stock returns would exhibit a lagged relationship to exchange rate changes in a competitive foreign exchange exposure. |
