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Adjusting Stock Market Values to Exchange Rate Exposure: The Case of ASTRA, SCA and STORA

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  • Rolseth, Lars

    (Unitfond)

Abstract

Europe's two largest forest product companies SCA and STORA are located in Sweden. One of the largest firms in Sweden is ASTRA, which is a pharmaceutical company. In this paper I analyze how the variance of these firms' values and their stock returns sensitivity to exchange rates and interest rates are affected by different hedging strategies. First are new share price series constructed there gains and losses due to not undertake any hedging practices for transaction and translation exposure are realized. There after are the exposure coefficients obtained from the adjusted share price compared to the exposure coefficients obtained using the firms core share price as a dependent variable. The results show that SCA and STORA manage to reduce the exchange rate exposure significantly, but that both SCA and STORA´s stock return are still sensitive to contemporaneous changes in exchange rates. The linear multiple regression method was unable to detect any significant exchange rate exposure for ASTRA. However, the hedging of translation and transaction exposure do not necessarily imply that the variance of the firm's value is reduced.

Suggested Citation

  • Rolseth, Lars, 1998. "Adjusting Stock Market Values to Exchange Rate Exposure: The Case of ASTRA, SCA and STORA," Working Papers in Economics 6, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0006
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    References listed on IDEAS

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    1. Jongmoo Jay Choi & Anita Mehra Prasad, 1995. "Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals," Financial Management, Financial Management Association, vol. 24(3), Fall.
    2. Sweeney, Richard J & Warga, Arthur D, 1986. "The Pricing of Interest-Rate Risk: Evidence from the Stock Market," Journal of Finance, American Finance Association, vol. 41(2), pages 393-410, June.
    3. Mello, Antonio S. & Parsons, John E. & Triantis, Alexander J., 1995. "An integrated model of multinational flexibility and financial hedging," Journal of International Economics, Elsevier, vol. 39(1-2), pages 27-51, August.
    4. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-345, July.
    5. Lars Oxelheim & Clas Wihlborg, 1995. "Measuring macroeconomic exposure: The case of Volvo Cars," European Financial Management, European Financial Management Association, vol. 1(3), pages 241-263, November.
    6. Khoo, Andrew, 1994. "Estimation of foreign exchange exposure: an application to mining companies in Australia," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 342-363, June.
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    More about this item

    Keywords

    Transaction exposure; Translation exposure; Hedging strategies;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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