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Exchange rate exposure of Latin American firms: Empirical evidence

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  • Santillán-Salgado, Roberto J.
  • Núñez-Mora, José Antonio
  • Aggarwal, Raj
  • Escobar-Saldivar, Luis Jacob

Abstract

We study the exchange rate exposure of 776 listed Latin American firms from Argentina, Brazil, Chile, Colombia, Mexico and Peru, during 2009-2016. Regressing stock returns with domestic exchange rate changes and stock market returns as explanatory and control variables, respectively, and correcting for Classical Linear Regression assumptions violations, leaving aside non-significant regressions, the narrowed sample includes 139 regressions. The results confirm that for all countries except Colombia, and for all economic sectors considered, average exchange rate coefficients are negative, highly statistically significant, and economically significant. Additional Panel Data Analysis tests confirm these findings. Published studies on Latin American firms’ currency exposure have not used a sophisticated methodology nor applied it to as large a set of firms as has been done here. Our results suggest that Latin American firms are mostly domestic in their businesses, providing important guidance for economic development policies.

Suggested Citation

  • Santillán-Salgado, Roberto J. & Núñez-Mora, José Antonio & Aggarwal, Raj & Escobar-Saldivar, Luis Jacob, 2019. "Exchange rate exposure of Latin American firms: Empirical evidence," Journal of Multinational Financial Management, Elsevier, vol. 51(C), pages 80-97.
    • Handle: RePEc:eee:mulfin:v:51:y:2019:i:c:p:80-97
    DOI: 10.1016/j.mulfin.2019.03.001
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    Cited by:

    1. Lado-Sestayo, Rubén & De Llano-Paz, Fernando & Vivel-Búa, Milagros & Martínez-Salgueiro, Andrea, 2023. "Commodity exposure in the eurozone: How EU energy security is conditioned by the Euro," Energy, Elsevier, vol. 277(C).

    More about this item

    Keywords

    International finance; Foreign exchange rate exposure; Stock market valuation; Latin America; Emerging markets;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F39 - International Economics - - International Finance - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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