A Dynamic Analysis of Exchange Rate Exposure: The impact of China's Renminbi

type="main" xml:id="twec12365-abs-0001"> This study examines the impacts of unexpected exchange rate movements of Chinese renminbi (CNY/USD) on stock returns of Standard & Poor's 500 corporations. To gain better insight into the long-standing exposure puzzle concerning the divergence between theoretical and empirical investigation and the critical issue regarding the determinants of exposure, the time variation and asymmetry property associated with foreign exchange exposure are further taking into account. We also broaden the scope of analysis to investigate unexpected risk exposure at 10 economic sectors in compliance with Global Industry Classification Standard. Unlike those from the static analysis or dynamic ones with the ordinary least squares model, the empirical findings provide additional concrete evidence that unexpected exchange rate exposure varies substantially across time and market circumstances when using the quantile regression with a rolling method. Furthermore, our dynamic analysis not only supports the existence of industrial effects across different economic sectors, but also provides strong evidence that financial factors, such as size, debt ratio and book to market ratio, have a significant impact on exposure.