TIME-VARYING EXCHANGE RATE EXPOSURE COEFFICIENTS (EXPOSURE BETAS): EVIDENCE FROM COUNTRY LEVEL STOCK RETURNS

Authors

  • P. Jayasinghe Department of Business Economics, Faculty of Management & Finance, University of Colombo
  • A. K. Tsui Department of Economics, National University of Singapore

Abstract

This paper uses time-varying second moments to inves-tigate exchange rate exposure betas. Using a BEKK-GARCH(1,2,1)-M model, time-varying exchange rate exposure betas are obtained with explicit focus on the nonorthogonality between exchange rate changes and market returns. We look into certain aspects of the sto-chastic structure underlying the exposure betas. An important finding of the paper is that, although exchange rate exposure betas are likely to vary over time, they follow  mean-reverting long-memory processes. The presence of mean-reverting exchange rate exposure coefficients has important implications for investment and hedging strategies.

Keywords: Time-varying exchange rate exposure; Multivariate GARCH-M models; International CAPM; Fractionally integrated processes

For full paper: fmscresearch@sjp.ac.lk

Author Biographies

P. Jayasinghe, Department of Business Economics, Faculty of Management & Finance, University of Colombo

Department of Business Economics,
Faculty of Management & Finance,
University of Colombo

A. K. Tsui, Department of Economics, National University of Singapore

Department of Economics,
National University of Singapore

Published

2012-12-18

Issue

Vol. 5 (2008): Proceedings of the Fifth International Conference on Business Management

Section

Articles