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Exchange Rate and Interest Rate Exposure of UK Industries Using First‐order Autoregressive Exponential GARCH ‐in‐mean ( EGARCH ‐ M ) Approach
Author(s) -
Olugbode Mojisola,
ElMasry Ahmed,
Pointon John
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12029
Subject(s) - economics , autoregressive conditional heteroskedasticity , econometrics , volatility (finance) , autoregressive model , interest rate , exchange rate , order (exchange) , financial economics , stock exchange , stock (firearms) , monetary economics , finance , engineering , mechanical engineering
We examine the sensitivity of 31 UK non‐financial industries to exchange and interest rate exposure from 1990 to 2006 using first‐order autoregressive exponential GARCH‐in‐mean (EGARCH‐M) model. We find that the stock returns of UK industries are more affected by long‐term interest rate risk than exchange rate risk and short‐term interest rate risk. Moreover, the euro introduction decreases exchange and interest rate exposure and competitive industries exhibit higher returns volatility than concentrated industries. Furthermore, for most UK industries: increased risk does not necessarily lead to an increase in returns and persistence of volatility is much higher in some industries than others.