Abstract
This paper reports key findings about currency risk using two samples of listed firms: one sample with zero foreign currency revenues, hence having zero-currency risk; and the other sample with positive revenues in foreign currencies from foreign transactions. The latter is therefore, exposed to currency risk. Asset pricing theories predict that stocks of currency-risk-exposed firms should suffer significant currency risk, while those firms with zero-currency-risk should not have any effect from currency risk since currency transactions across borders is nil. The latter hypothesis has yet to be tested explicitly, so there is a gap in the literature. We report stock returns are significantly affected not just for firms with foreign-currency revenues but also for firms with zero foreign-currency transactions. These findings are useful to top management of all businesses to undertake currency-hedge plans for both domestic and international trading firms.
| Original language | English |
|---|---|
| Pages (from-to) | 25-56 |
| Number of pages | 32 |
| Journal | International Journal of Banking and Finance |
| Volume | 17 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 27 Jun 2022 |
Bibliographical note
This work is licensed under a Creative Commons Attribution 4.0 International License.Funding
The authors would like to express their gratitude to the Malaysian Government which funded this research on currency risk under its 2016-9 Fundamental Research Grant Scheme (Ref: FRGS/1/2016/ SS01/UPM/01/1). In addition, we are grateful to the discussants/ participants of the 22nd Malaysian Finance Association Conference (17-19 November 2020) for their comments. This paper won the best paper award at the MFA-2020 conference.
| Funders | Funder number |
|---|---|
| Government of Malaysia | FRGS/1/2016/ SS01/UPM/01/1 |
Keywords
- Exchange rate
- direct vs indirect exposure
- panel regression
- Australian dollar
- pooled vs fixed vs random effectspooled vs fixed vs random effects