Change search
ReferencesLink to record
Permanent link

Direct link
The relationship between weeklyexchange rate movements and stockreturns: Empirical evidence in five Asian markets
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Umeå School of Business.
2010 (English)Independent thesis Advanced level (degree of Master (Two Years)), 30 credits / 45 HE creditsStudent thesis
Abstract [en]

Following the development of international trade, exchange rate uncertainty is a majorsource of risk for corporations involved in international activities. It has forcedmanagers and academics to pay more attention to the effect of exchange rate volatilityon firm value, particularly in developed countries. In the 1990s Asian financial crises,the stock return volatility of US multinational firms increases significantly with therapid expansion of Asian currency crises to world stock market. It led academics andinvestors to pay increasing attention to examine exchange rate exposure in Asia stockmarkets. Nowadays the value of U.S. dollar increased volatility against Asian countries’currency since U.S. financial crisis beginning in August 2007. From what we know, fewof researches report the impact of US financial crisis for Asia firms. This paper aims toexplore the relation between exchange rate movement and firm values in Asian markets.

The main purpose of this paper is to examine whether a significant contemporaneousand lagged variability of Asian firms’ stock returns are affected by exchange ratemovement in Asian markets, such as Hong Kong, Singapore, China, Taiwan, andMalaysia during the period from August 2005 to March 2010. Differences of capitalmaturity were compared with among these five Asian economies, covering bothdeveloped markets and emerging markets in Asia. This comparison makes sense tounderstand the efficient market hypothesis theory. In order to ensure our research’svalidity and reliability, sample firms are randomly chosen by the method of stratifiedsampling. The second step in this study is to examine the impact of firm-specific factorson sensitivity to exchange rate movement for those firms with a significant exchangerate exposure. The five firm specific factors are firm size, leverage situation, hedgingactivities, foreign involvement level, and industry classification. The main methods inthis quantitative research are simple and multiple linear regressions. The ordinary leastsquares method in SPSS program was used to estimate the parameters for eachindependent variable.

Using a sample of 182 listed firms in these five sample markets, except China,exchange rate exposure of firms in other four Asian markets increases significantly insome sub-period during three sub-periods. After examining the sensitivity to weeklyexchange rate movement of local currency to US Dollar, it is noticeable for academicsthat there is no obvious difference between developed markets and emerging markets inAsia during the period of August 2005 to March 2010. Moreover, the relationshipbetween exchange rate and stock returns varied from markets with respect to exchangerate regimes and level of capital control. As to firm-specific factors, firm size wasnegatively related to exchange rate exposure and this effect was stronger in developedmarkets than other. Similar to previous studies, Asian markets also showed thatexchange rate exposure differed among industries. However, the effect on exchange rateexposure is not significant caused by leverage, foreign sales and hedging activityinvolvement. Suggestions and recommendations for further studies are provided in thelast part of this paper.

Place, publisher, year, edition, pages
2010. , 109 p.
Keyword [en]
exchange rate movement, stock price, exchange rate and stock return, foreign exchange rate exposure, Asian markets.
National Category
Business Administration
URN: urn:nbn:se:umu:diva-37497OAI: diva2:370027
s206, umeå university, USBE (English)
Social and Behavioural Science, Law
Available from: 2010-11-15 Created: 2010-11-05 Last updated: 2010-11-15Bibliographically approved

Open Access in DiVA

fulltext(618 kB)2169 downloads
File information
File name FULLTEXT01.pdfFile size 618 kBChecksum SHA-512
Type fulltextMimetype application/pdf

Search in DiVA

By author/editor
Wen, MingjieTang, Tang
By organisation
Umeå School of Business
Business Administration

Search outside of DiVA

GoogleGoogle Scholar
Total: 2169 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

Total: 535 hits
ReferencesLink to record
Permanent link

Direct link