Using Survey Data to Resolve the Exchange Risk Exposure Puzzle: Evidence from U.S. Multinational Firms

W.F.C. Verschoor, R. Jongen, A. Muller

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of 'realized' and 'unexpected' currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts. © 2011 Elsevier Ltd.
Original languageEnglish
Pages (from-to)148-169
JournalJournal of International Money and Finance
Volume31
Issue number2
DOIs
Publication statusPublished - 2012

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