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The time-varying diversifiability of corporate foreign exchange exposure

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  • Krapl, Alain A.

Abstract

Estimating comovement measures for a large set of bilateral foreign exchange (FX) rates, I explore the relation between firm-level FX exposure and its time-varying diversifiability. For a sample of U.S. firms, the magnitude of FX exposure appears to increase during periods of low currency risk diversifiability. Additional results suggest that the introduction of the euro exacerbated the effect of diversifiability on developed market currency exposure. Moreover, the low diversifiability of emerging market currencies seems to have a stronger effect on FX exposure than the low diversifiability of developed market currencies.

Suggested Citation

  • Krapl, Alain A., 2020. "The time-varying diversifiability of corporate foreign exchange exposure," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119918300038
    DOI: 10.1016/j.jcorpfin.2019.101506
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    More about this item

    Keywords

    Foreign exchange (FX) exposure; FX exposure puzzle; Time-varying FX exposure; Diversifiability of FX exposure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F39 - International Economics - - International Finance - - - Other

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