Exchange rate exposure of sectoral returns and volatilities: Evidence from Japanese industrial sectors

Most studies of exchange rate exposure of stock returns do not address three relevant aspects simultaneously. They are, namely: sensitivity of stock returns to exchange rate changes; sensitivity of volatility of stock returns to volatility of changes in foreign exchange market; and the correlation between volatilities of stock returns and exchange rate changes. In this paper, we employ a bivariate GJR-GARCH model to examine all such aspects of exchange rate exposure of sectoral indexes in Japanese industries. Based on a sample data of fourteen sectors, we find significant evidence of exposed returns and its asymmetric conditional volatility of exchange rate exposure. In addition, returns in many sectors are correlated with those of exchange rate changes. We also find support for the “averaged-out exposure and asymmetries” argument. Our findings have direct implications for practitioners in formulating investment decisions and currency hedging strategies.     

Currency Exposure in China under the New Exchange Rate Regime: National Level Evidence

The present paper studies China's national level currency exposure since 2005 when the country adopted a new exchange rate regime allowing the renminbi (RMB) to move towards greater flexibility. Using generalized autoregressive conditional heteroskedastic and constant conditional correlation‐generalized autoregressive conditional heteroskedastic methods to estimate the augmented capital asset pricing models with orthogonalized stock returns, we find that China equity indexes are significantly exposed to exchange rate movements. In a static setting, there is strong sensitivity of stock returns to movements of China's tradeweighted exchange rate, and to the bilateral exchange rates except the RMB/dollar rate. However, in a dynamic framework, exposure to all the bilateral currency pairs under examination is significant. The results indicate that under the new exchange rate regime, China's gradualist approach to moving towards greater exchange rate flexibility has managed to keep exposure to a moderate level. However, we find evidence that in a dynamic setting, the exposure of the RMB to the dollar and other major currencies is significant. For China, the challenge of managing currency risk exposure is looming greater.     

The foreign exchange exposure of Chinese banks

Using the capital market approach and the equity price data of 14 listed Chinese banks, this empirical study finds that there is a positive relationship between bank size and foreign exchange exposure. This relationship may reflect the larger foreign exchange operations and trading positions of larger Chinese banks and their significant indirect foreign exchange exposure arising from impacts of the renminbi exchange rate movements on their customers. Empirical evidence also suggests that the average foreign exchange exposures of state-owned and joint-stock commercial banks in China are higher than those of banks in Hong Kong, notwithstanding their limited participation in international banking businesses compared with their Hong Kong counterparts. It is also found that negative foreign exchange exposure is prevalent for larger Chinese banks, suggesting that an appreciation of the renminbi tends to reduce their equity value. It is therefore likely that the banking sector's performance will be hampered. Together with the fact that decreases in equity values generally imply a higher default risk, the effects of different scenarios of renminbi appreciation on the default risk of Chinese banks should therefore be closely monitored.     

Sources of time-varying exchange rate exposure

We report evidence of a time-varying link between returns on national stock market indexes and exchange rate returns (exchange rate exposure). We use this evidence to analyze the sources of changes over time in exchange rate exposure. Using monthly data for 14 industrialized countries for the period 1975–2006, we report evidence of a cointegration relation between exchange rate exposure and the industry composition of a country’s imports, and weaker evidence of a cointegration relation between exchange rate exposure and openness to trade.     

Directional accuracy tests of Chinese renminbi forecasts

This study investigates the directional accuracy of Chinese renminbi exchange rate forecasts by professional forecasters. The forecast with a horizon of one year is useful, whereas the forecasts with forecast horizons of one and three months are not useful in predicting the direction of the exchange rate change. The results for the long-term forecasts suggest that forecasters believe that the government maintains its foreign exchange rate policy of renminbi appreciation. In contrast, short-term forecasts show consistent evidence of exchange rate unpredictability.     

Reinvestigating the Oil Price–Stock Market Nexus: Evidence from Chinese Industry Stock Returns

The present study investigates the influence of international oil prices on China's stock market returns across 29 different industries. The paper attempts to account for any structural breaks and nonlinearity in this relationship. The results reveal that the effect of changes in the international price of oil on stock returns differs substantially across industries. The stock returns of the coal, chemical, mining and oil industries are found to be positively affected by crude oil price movements. Conversely, electronics, food manufacturing, general equipment, pharmaceuticals, retail, rubber and vehicle industries are found to be negatively affected by movements in the price of crude oil. The results of the estimations also suggest that the majority of Chinese industries have been significantly affected by oil prices since 2004. The influence of international oil prices on Chinese stocks also has a stronger effect in the presence of high volatility but the effect varies across industries.     

人民币汇率波动对股票价格报酬影响的实证研究

文章基于我国2005年7月-2010年2月的时间序列数据,采用单位根检验、协整检验、格兰杰因果检验以及VAR模型,对人民币汇率波动与股票价格报酬间关系进行了实证研究,结果发现：人民币汇率、利率、CPI和股票价格报酬之间存在长期的协整关系,且人民币汇率对股票价格报酬有正的影响效应,CPI对股票价格报酬也有一定的正向影响,而利率对股票价格报酬有负向影响效果。     

Fear of appreciation in East and Southeast Asia: The role of the Chinese renminbi

Our study brings into light evidence of the important role of the Chinese renminbi in shaping the exchange rate behavior of a select group of East Asian currencies. Results obtained suggest that there is an additional dimension to the ‘fear of appreciation’ or ‘fear of floating-in-reverse’ behavior, initially coined by Levy-Yeyati and Sturzengger (2007) with regard to the experiences of this group of East Asian currencies. In particular, we find that there is a greater degree of aversion to appreciation of these East Asian currencies—specifically, the Philippine peso and the Thailand baht—against the Chinese renminbi than against the US dollar. This heightened fear of appreciation against the Chinese currency confirms that trade competition matters in this part of the world and that this fear to appreciate plays a central role in the exchange rate management of major East Asian currencies. As envisaged, the increasing role of China as a major trading hub in the region as well as globally, implies that the Chinese renminbi would exert a growing significant influence on other currencies in the region.     

人民币汇率波动对股票价格影响的实证研究

文章基于我国2005年7月-2010年2月的时间序列数据，采用单位根检验、协整检验、格兰杰因果检验以及VAR模型，对人民币汇率波动与股票价格间关系进行了实证研究，结果发现：人民币汇率、利率、CPI和股票价格之间存在长期的协整关系，且人民币汇率对股票价格有正的影响效应，CPI对股票价格也有一定的正向影响，而利率对股票价格有负向影响效果。     

Renminbi internationalization as a response to the global imbalance

The build-up of huge foreign exchange reserve makes China a net creditor and also brings in significant challenges to the Chinese economy. Considering the internationalization of the renminbi as China’s response to the global imbalance, this paper analyzes the effect of renminbi internationalization on the formation of reserves and compares its benefits and costs in rebalancing China’s external position with those of outward direct investment. It assesses the current progress in the practice of using the renminbi in cross-border trade settlement and in the development of the offshore renminbi market. It further examines the possibility of the renminbi serving as a global reserve currency in the future.     

Estimating Korea's Exchange Rate Exposure

This paper conducts an empirical analysis of the exchange rate exposure of 392 Korean firms by employing not only changes in the exchange rate but also the standard deviation of exchange rates as foreign exchange risk. A logit model is also used to identify the major factors in exchange rate exposure. The empirical results in the case of using the standard deviation of exchange rates suggest that: the number of firms showing significant exchange rate exposure has been relatively increasing; exchange rate exposure is more likely for export‐oriented manufacturing industries than for nonmanufacturing industries; and large firms using hedging methods are likely to show a low degree of exchange rate exposure.     

The relationship between liquidity and returns on the Chinese stock market

The goal of this paper is to examine the impact of liquidity on returns on the Shanghai stock exchange (SHSE) and the Shenzhen stock exchange (SZSE). We proxy liquidity with the trading volume (TV), the turnover rate (TR), and the trading probability (TP). Using daily data for the period January 1997 and December 2003, we find mixed results on the relationship between liquidity and returns. There is greater evidence of liquidity having a negative effect on returns on the SHSE than on the SZSE. However, this evidence is not robust across the three proxies for liquidity that we use.     

Can Renminbi Appreciation Reduce the US Trade Deficit？

I. Introduction The trade relationship between the USA and China has been contentious during the past several decades since China’s economic reforms in 1978. The trade relationship between the two countries has been strongly constrained and highly politically influenced. Figure 1 depicts US–China trade from 1994 to 2004. US imports from China have been far greaterthan US exports to China over the past 10 years, and the corresponding US trade deficits with China have become increasingl…     

In search of an optimal strategy for yuan’s real revaluation

International commentators seem to have a consensus view that the Chinese yuan is substantially undervalued and the Chinese monetary authority must take speedy actions to redress the currency misalignment by rapid nominal revaluation. This paper argues for a gradualist but comprehensive strategy for adjusting the renminbi’s exchange rate. Taking into consideration the facts that the yuan’s undervaluation is caused by an array of domestic and international factors and that the Chinese central bank cannot effectively invest its growing holdings of foreign reserves, we develop a framework to provide a theoretical underpinning for the optimal strategy for the renminbi’s gradual revaluation. With this strategy, the renminbi undervaluation problem is gradually redressed through a combination of nominal appreciation and higher inflation plus some other structural and macroeconomic policies. This strategy can also allow absorption of external imbalances, hence strengthening the foundation of China’s long-term growth.     

中国对外金融的政策排序——基于国家对外资产负债表的分析

文章立足于中国国际投资头寸表,以提高中国对外净资产为目标,讨论了中国对外金融开放的政策排序。增加对外负债的前提是提高对外资产的投资收益,这一逻辑决定了人民币汇率形成机制改革、外汇储备管理体系改革、资本流出管理改革是当前最迫切的改革内容,人民币国际化与资本流入管理改革应该在上述改革的基础上推进。     

A reinvestigation of the new RMB exchange rate regime

To examine the new renminbi exchange rate regime rigorously, we employ the STARTZ model to investigate renminbi nominal effective exchange rate behavior from mid-2006 to mid-2008. A managed float with a target central parity and without an explicit band best describes the daily exchange rate movement between renminbi and other currencies. We also find some peculiar attributes of the renminbi nominal effective exchange rate, including small conditional variance and stronger effects from government interventions in foreign exchange markets.     

Asian foreign exchange risk exposure

We find that about 25 percent of Asian firms experienced economically significant exposure effects to the US dollar and 22.5 percent to the Japanese yen for the period January 1993 to January 2003. The overall extent of exposure is not sample dependent; a depreciating (appreciating) Asian currency against foreign currencies has a net negative (positive) impact on stock returns. The extent to which firms are exposed to exchange rate fluctuations varies with return horizons; short-term exposure seems to be relatively well hedged, where considerable evidence of long-term exposure is found. Firms with weak liquidity positions tend to have smaller exposures. J. Japanese Int. Economies 21 (1) (2007) 16–37.     

信息、政策冲击和中国股票、债券及外汇市场一体化——基于AG-DCC模型的金融市场动态相关性分析

本文运用Cappiello et al．（2006）提出的AG—DCC模型对中国金融市场的研究发现,中国股票、债券和外汇市场间存在明显的动态相关性 ,虽然“正向冲击”和“负向冲击”对金融市场波动并不产生明显的非对称效应,但对市场间动态相关性有着显著的影响,而且信息和政策冲击反映在动态相关性的结构变化上。最后,用平均动态相关性作为一体化指标对中国金融市场的考察发现,相对于欧盟市场间,中国股票市场一体化程度相当高,但股票和债券、股票和外汇以及债券和外汇市场间的一体化程度有待提高。     

人民币升值压力分析及政策建议

2005年7月人民币汇率形成机制改革以来,人民币汇率振荡走高。进入2008年,人民币升值趋势不减,已先后45余次创出汇改以来新高。本文结合汇率改革以来的人民币汇率变动情况,对未来人民币汇率的变动趋势做一些粗浅的分析并提出相应的政策建议。     

Business Cycle in China since the Lehman Crisis： Interaction among Macroeconomic Policy,Economic Growth and Inflation

The major objectives of China＇s macroeconomic policy are to stabilize economic growth and inflation, which, in turn, are important factors determining key prices, such as the policy interest rate, the renminbi exchange rate and stockprices. In a framework that distinguishes different phases of the business cycle based on whether the current period＇s economic growth rate and inflation rate are above or below their ＂＇normal＂ values, this paper analyzes the interaction among macroeconomic policy, economic growth and inflation in China since the Lehman crisis, and the implications for these key prices. The path of China＇s economy indicates that stimulus measures taken by the government during the recession phase and tightening measures implemented during the overheating phase have helped minimize the fluctuation over the business cycle. Our analysis shows that Chinese authorities tend to rely more on adjusting the exchange rate than the interest rate to stabilize the economy. Comparing with conditions at the time of the post-Lehman recession, the current slowpace of economie growth in China may reflect not only weakening demand, but also a lowerpotential growth rate associated with the arrival of the Lewis turning point.