A test of the stability of exchange rate risk: Evidence from the Australian equities market |
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| Institution: | 1. University of Karachi, Pakistan;2. Institute of Business Administration, Karachi, Pakistan;1. University of Malaysia Terengganu, Malaysia;2. COMSATS Institute of Information Technology, Islamabad, Pakistan;3. Energy and Sustainable Development, Montpellier Business School, Montpellier, France;4. School of Maritime Business and Management, University of Malaysia Terengganu, Malaysia;5. Victoria Institute of Strategic Economic Studies, Victoria University, Australia;6. Lebow College of Business, Philadelphia, PA, United States;1. University of Toulon, Mediterranean Institute of Oceanography, MIO-UM 110, France;2. University of Crete, Chemistry Department, Greece;3. CNR-ISMAR, Genova, Italy;4. University of Genova, Department of Physics and INFN, Italy;5. CNR-ISMAR, Venice, Italy;1. Biodiversity Economics, Department of Economics, Leipzig University, German Centre for Integrative Biodiversity Research (iDiv) Halle-Jena-Leipzig, Deutscher Platz 5a, 04103 Leipzig, Germany;2. Department of Agricultural Economics, University of Kiel, Wilhelm-Seelig Platz 7, 24118, Kiel, Germany;1. School of Metallurgy and Environment, Central South University, Changsha 410083, China;2. Engineering Research Center of High Performance Battery Materials and Devices, Research Institute of Central South University in Shenzhen, Shenzhen 518057, China;1. Stazione Zoologica Anton Dohrn, Villa Comunale, 80121 Napoli, Italy;2. Békésy Laboratory of Neurobiology, Pacific Biosciences Research Center, University of Hawaii at Manoa, 1993 East-West Road, Honolulu, HI 96822, USA;3. Dipartimento di Scienze Chimiche, Università degli Studi di Napoli, Monte Sant’Angelo, 80126 Napoli, Italy;4. Istituto di Scienze Marine CNR, Castello 2737/f, I30122 Venice, Italy |
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| Abstract: | This paper investigates the sensitivity of equity returns on Australian industry portfolios to an exchange rate factor for the period 1988–1998. Specifically, using daily data, we (1) analyse the exchange rate exposure of the Australian equities market by implementing a basic augmented market model using relevant bilateral exchange rates, (2) investigate the intertemporal stability of the exchange rate exposure by using a dummy variable specification, and (3) attempt to establish the determinants of the exchange rate exposure of Australian industries by undertaking a cross-sectional analysis. A further empirical issue addressed by our study is that of whether the sensitivity is contemporaneous or lagged. We find (a) some evidence of exchange rate exposure, (b) some evidence of intertemporal sensitivity, and (c) a greater sensitivity to movements in the Australian dollar/US dollar exchange rate factor than to movements in the Australian dollar/Japanese yen. Further, we observe a significant lagged effect when employing the basic augmented model. This difference in the response of the industry portfolio returns is not observed, however, in our intertemporal stability investigation. Finally, we do not find significant evidence in terms of the cross-sectional determinants of foreign exchange exposure. |
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