through five give the percent of firms that show significant currency exposure, column 6
gives the median corrected r-squared, and column seven gives the number of firms.10 The
estimates suggest that exchange rate fluctuations are important for many of the firms in
most, but not all, of the countries. Moreover, the major currencies are not equally
important. The first four columns give the fraction of firms that exhibit exposure to the
dollar, the euro, the yen, and the pound. That is, for each country, Columns 1 though 4
give the fraction of firms for which we can reject at the five percent significance level the
separate hypotheses that ȕUS$ = 0, ȕ€ = 0, ȕ£ = 0, and ȕ¥ = 0.11 As shown in the first
column, sizable shares of firms in most of the countries appear to be exposed to
fluctuations in the U.S. dollar.12 Over half of the Korean, Philippine, and Indonesian firms
exhibit significant exposure to the dollar. The euro and yen appear to be important to a
notable share of firms in only a few countries – the yen in Hong Kong and Singapore, and
the euro in Taiwan. Fluctuations in the pound do not appear to matter much at all. Most
notably, the pound matters not a whit in Hong Kong.
We also test the hypothesis that all the exchange rate coefficients equal zero. That
Weekly returns are calculated from Friday to Friday. A list of all company names, their market value (as of March 2002), the time period of the data for each company (including total number of observations), and their DataStream industry code and descriptor – for all countries is available from the authors.
10 11 In all, Table 2 summarizes 871 separate regressions. Significance tests throughout the paper are based on estimated covariance matricies robust to heteroscedasticity and serially correlated residuals (of up to five lags). See, Newey and West (1987).
12 As emphasized by a referee, the Japanese stock market is very much bigger than the stock markets in the other countries that we examine. Moreover, the top Japanese firms are themselves extremely large, and they may not be as representative of the country’s market as a whole. Indeed, looking at a more representative cross-section, we find much less dollar sensitivity. Estimating equation 1 for 1000 Japanese firms, only seven percent of them are significantly exposed to fluctuations in the dollar exchange rate. (Exposure to the euro and pound remains low.) This lower dollar exposure is more in keeping with the findings in our benchmark countries, Australia and New Zealand, and with other work examining large, industrialized countries.