TY - JOUR
T1 - Using survey data to resolve the exchange risk exposure puzzle: Evidence from U.S. multinational firms
AU - Jongen, Ron
AU - Muller, Aline
AU - Verschoor, Willem F.C.
PY - 2012/3
Y1 - 2012/3
N2 - This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of 'realized' and 'unexpected' currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts. © 2011 Elsevier Ltd.
AB - This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of 'realized' and 'unexpected' currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts. © 2011 Elsevier Ltd.
KW - Exchange risk exposure
KW - Heterogeneity
KW - Survey-based expectations
KW - U.S. multinational firms
UR - https://www.mendeley.com/catalogue/40d78e34-34a0-3d59-be54-24f7b4fd8e71/
U2 - 10.1016/j.jimonfin.2011.10.002
DO - 10.1016/j.jimonfin.2011.10.002
M3 - Article
SN - 0261-5606
VL - 31
SP - 148
EP - 169
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 2
ER -