Department of Economics and Business Economics

Firm-Specific Foreign Exchange Exposure Identification: The Fallacy of the Stock Market Approach

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Firm-Specific Foreign Exchange Exposure Identification : The Fallacy of the Stock Market Approach. / Aabo, Tom; Brodin, Danielle.

In: Applied Economics and Finance, Vol. 1, No. 1, 2014, p. 1-12.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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Aabo, Tom ; Brodin, Danielle. / Firm-Specific Foreign Exchange Exposure Identification : The Fallacy of the Stock Market Approach. In: Applied Economics and Finance. 2014 ; Vol. 1, No. 1. pp. 1-12.

Bibtex

@article{e8bc1881758d454098dc4b14be336d22,
title = "Firm-Specific Foreign Exchange Exposure Identification: The Fallacy of the Stock Market Approach",
abstract = "Previous studies have used the stock market approach to find the aggregate number of (firms with) foreign exchange exposures in a given country, region, or industry. Methodologies have differed in many aspects but two of the most basic differences relate to observation frequency and the choice of market index. Aggregate numbers have been shown to be (marginally) sensitive to the methodology employed. However, a corporate manager, an investor, or a stock analyst following a specific firm is not interested in the sensitivity on an aggregated level but on a firm-specific level. If the results for a specific firm are robust across methodologies, the corporate manager, the investor, or the stock analyst will rely on such results to a larger extent that if the results are highly sensitive to e.g. a change in observation frequency. We apply firm-specific sensitivity analysis to Scandinavian non-financial firms and find limited consistency in the detected exchange rate exposures when altering methodology in terms of observation frequency and choice of market index. The results put a question mark to the validity of the stock market approach for exchange rate exposure identification at the firm-specific level. ",
keywords = "Market index , Exchange rate exposure, Stock market approach, Exposure identification, Observation frequency",
author = "Tom Aabo and Danielle Brodin",
year = "2014",
doi = "10.11114/aef.v1i1.304",
language = "English",
volume = "1",
pages = "1--12",
journal = "Applied Economics and Finance",
issn = "2332-7308",
publisher = "Redfame Publishing Inc",
number = "1",

}

RIS

TY - JOUR

T1 - Firm-Specific Foreign Exchange Exposure Identification

T2 - The Fallacy of the Stock Market Approach

AU - Aabo, Tom

AU - Brodin, Danielle

PY - 2014

Y1 - 2014

N2 - Previous studies have used the stock market approach to find the aggregate number of (firms with) foreign exchange exposures in a given country, region, or industry. Methodologies have differed in many aspects but two of the most basic differences relate to observation frequency and the choice of market index. Aggregate numbers have been shown to be (marginally) sensitive to the methodology employed. However, a corporate manager, an investor, or a stock analyst following a specific firm is not interested in the sensitivity on an aggregated level but on a firm-specific level. If the results for a specific firm are robust across methodologies, the corporate manager, the investor, or the stock analyst will rely on such results to a larger extent that if the results are highly sensitive to e.g. a change in observation frequency. We apply firm-specific sensitivity analysis to Scandinavian non-financial firms and find limited consistency in the detected exchange rate exposures when altering methodology in terms of observation frequency and choice of market index. The results put a question mark to the validity of the stock market approach for exchange rate exposure identification at the firm-specific level.

AB - Previous studies have used the stock market approach to find the aggregate number of (firms with) foreign exchange exposures in a given country, region, or industry. Methodologies have differed in many aspects but two of the most basic differences relate to observation frequency and the choice of market index. Aggregate numbers have been shown to be (marginally) sensitive to the methodology employed. However, a corporate manager, an investor, or a stock analyst following a specific firm is not interested in the sensitivity on an aggregated level but on a firm-specific level. If the results for a specific firm are robust across methodologies, the corporate manager, the investor, or the stock analyst will rely on such results to a larger extent that if the results are highly sensitive to e.g. a change in observation frequency. We apply firm-specific sensitivity analysis to Scandinavian non-financial firms and find limited consistency in the detected exchange rate exposures when altering methodology in terms of observation frequency and choice of market index. The results put a question mark to the validity of the stock market approach for exchange rate exposure identification at the firm-specific level.

KW - Market index

KW - Exchange rate exposure

KW - Stock market approach

KW - Exposure identification

KW - Observation frequency

U2 - 10.11114/aef.v1i1.304

DO - 10.11114/aef.v1i1.304

M3 - Journal article

VL - 1

SP - 1

EP - 12

JO - Applied Economics and Finance

JF - Applied Economics and Finance

SN - 2332-7308

IS - 1

ER -