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Exchange rate exposure: Evidence from China
Author(s) -
Li Guangzhong,
Wang Ziyue,
Zhao Yu
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12411
Subject(s) - endogeneity , exchange rate , economics , hedge , jump , volatility (finance) , renminbi , econometrics , monetary economics , enterprise value , value (mathematics) , china , autoregressive model , sample (material) , financial economics , statistics , finance , mathematics , ecology , physics , chemistry , chromatography , quantum mechanics , biology , law , political science
This paper examines exchange rate exposure using a sample of Chinese firms. To measure RMB exchange rate volatility and jump risk, we apply the autoregressive conditional jump intensity (ARJI) model to the industry‐specific nominal effective exchange rate (I‐NEER) for 13 Chinese manufacturing industries over the period 2001 to 2017, We find that exchange rate risks do affect firm value at the industry level, and the effect is more significant for the jump risks that are more difficult to hedge and in the sample period when hedge activities are less likely to occur. Our results suggest that the exposure puzzle could be a result of the endogeneity of operative and financial hedging. Firm‐level analysis finds that exchange rate risk affects firm value for more than 20% of Chinese firms, and a firm's exchange rate exposure varies with the firm's characteristics.