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Asymmetric Exchange Rate Exposures: A Search for the Effect of Real Options

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Real options like the ability to reallocate production resources can lead to an asymmetric exchange rate exposure. Using a stock market approach in which the exchange rate exposure is derived from the information content in the stock prices this study examines the extra-market exchange rate exposures of a group of blue chip, industrial companies listed on the Copenhagen Stock Exchange. In these companies the existence of real options is an integrated part of the exchange rate exposure management process. The result of the stock market approach is mixed. Statistically significant asymmetric exchange rate exposures are identified successfully but the asymmetries can only to a limited extent be explained by the existence of real options. Financial options and pricing to market are competing explanations. Omitted variable bias further blurs the picture. These problems and the concept of path dependency in real options decision analysis partly disqualifies the stock market approach as a potent vehicle for identifying asymmetric exchange rate exposures caused by real options.
Original languageEnglish
Title of host publicationProceedings for the European International Business Academy 2001
Number of pages22
PublisherEuropean International Business Academy
Publication year2001
Publication statusPublished - 2001
Event27th Annual Meeting of EIBA - Paris, France
Duration: 13 Dec 200115 Dec 2001

Conference

Conference27th Annual Meeting of EIBA
LandFrance
ByParis
Periode13/12/200115/12/2001

    Research areas

  • Real Options, Exchange Rates, Asymmetric Exposure, Stock Market Approach

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