Can Event Study Methods Solve the Currency Exposure Puzzle?

50 Pages Posted: 7 Dec 2004

See all articles by Timothy T. Simin

Timothy T. Simin

Pennsylvania State University

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Robert C. Higgins

University of Washington - Department of Finance and Business Economics

Abstract

Prior empirical evidence on the stock price response of exposed firms to contemporaneous changes in exchange rates is weak. This paper avoids many problems encountered in previous work by using event-study methods to examine the daily stock price reactions of exposed U.S. multinationals to large, bi-lateral declines in the Mexican peso and Thai baht. We find a contemporaneous price response but interpret the magnitude of the response to say that the currency puzzle is not primarily due to methodological weaknesses in prior studies. Several findings suggest that effective financial and operational hedging may be the chief reason exchange rate changes do not affect stock prices more dramatically.

Keywords: Exchange rate exposure, currency crises, event study

JEL Classification: F3, F4, F2

Suggested Citation

Simin, Timothy T. and Dewenter, Kathryn L. and Higgins, Robert C., Can Event Study Methods Solve the Currency Exposure Puzzle?. Available at SSRN: https://ssrn.com/abstract=627425

Timothy T. Simin (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802
United States
814-865-3457 (Phone)

HOME PAGE: http://timsimin.net

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Robert C. Higgins

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
306 Mackenzie Hall
Seattle, WA 98195
United States
206-543-4379 (Phone)
206-528-0340 (Fax)

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