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Title: Essays on exchange rate exposure
Author: Ulu, Dilek
Awarding Body: University of Essex
Current Institution: University of Essex
Date of Award: 2013
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This thesis consists of three substantive essays on exchange rate exposure, each constituting a separate chapter. These essays address three questions to improve our knowledge on exchange rate exposure. First, do exchange rates matter to firms? Secondly, which companies are more likely to be affected by exchange rate changes? Finally, does exchange rate exposure play a role in cross-sectional return variation? The first essay (Chapter 2) addresses the first two questions for the UK market by utilising a detailed and novel dataset drawn from a variety of sources, including hand collected data from company financial reports. This permits a robust examination of exchange rate exposure and its determinants in the UK market. The chapter analyses monthly firm characteristics data for a sample of 168 non-financial companies for the 2000-2011 period. The empirical results indicate that firms with more foreign sales, less foreign assets and higher growth opportunities exhibit more exposure to exchange rate changes. The second essay (Chapter 3) adopts a novel quantile regression approach to examine exchange rate exposure in the UK market. This is able to provide a more nuanced picture of the relationship between exchange rate changes and stock returns. A puzzling finding in the exchange rate exposure literature is that often empirical researchers are led to conclude that exchange rate changes have no impact on stock returns. By adopting the quantile regression approach, the results show that exchange rate exposure is significant and negative for the firms which underperform and positive for the firms which overperform. The final essay (Chapter 4) investigates the relation between exchange rate exposure and stock returns. Specifically we use Fama-Macbeth regressions and focus on a sample of 251 UK non-fmancials over the years 2002-2011. We opt for a quantile regression estimation method which provides robust and more efficient estimates than OLS does particularly for data samples with heterogeneity and outliers. Our fmdings show that exposure is economically meaningful and is an important contributor to the cross-sectional variation in returns. We reveal substantial heterogeneity in the effects of exchange rate exposure on future stock returns
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available