Asymmetry and time variation in exchange rate exposure: An investigation of Australian stocks returns
International Journal of Commerce and Management
ISSN: 1056-9219
Article publication date: 23 November 2010
Abstract
Purpose
The purpose of this paper is to provide some insights into the exchange rate exposure of Australian stock returns.
Design/methodology/approach
Using a dynamic econometric approach that allows for both asymmetry and time‐varying risk exposures in both the exchange rate variable and the market variable, a large sample of Australian firms were tested over the period of January 2001 and December 2005. The data were analysed using three different classification methods, forming portfolios according to industry sector, size deciles, and censoring deciles.
Findings
Although the evidence of exchange rate exposure is limited across the sample of industries, the following were found: a time‐varying asymmetric effect primarily in the utilities sector, time‐varying exposure in the materials and energy sectors, and an asymmetric effect in the technology sector. Further, some time‐varying asymmetric exchange rate exposure was found across most size and censoring deciles and also substantial evidence of a positive asymmetric effect in the market beta across all three classification methods.
Originality/value
This approach varies from previous studies in this area that only allow for asymmetry and time variation in exchange rate exposures. The paper also examines the Australian stock market, a market which has not been extensively tested in this area of empirical research.
Keywords
Citation
Brooks, R.D., Di Iorio, A., Faff, R.W., Fry, T. and Joymungul, Y. (2010), "Asymmetry and time variation in exchange rate exposure: An investigation of Australian stocks returns", International Journal of Commerce and Management, Vol. 20 No. 4, pp. 276-295. https://doi.org/10.1108/10569211011094613
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited