Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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 newspaper › Journal article › Research › peer-review
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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 -