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 language
English
Title of host publication
Proceedings for the European International Business Academy 2001
Number of pages
22
Publisher
European International Business Academy
Publication year
2001
Publication status
Published - 2001
Event
27th Annual Meeting of EIBA - Paris, France Duration: 13 Dec 2001 → 15 Dec 2001
Conference
Conference
27th Annual Meeting of EIBA
Land
France
By
Paris
Periode
13/12/2001 → 15/12/2001
Research areas
Real Options, Exchange Rates, Asymmetric Exposure, Stock Market Approach