Time-Varying Exchange Rate Exposure Coefficients (Exposure Betas): Evidence from Country Level Stock Returns

Sri Lanka Journal of Economics, Vol. 10, No. 2, December 2009

23 Pages Posted: 6 Jul 2014

See all articles by Prabhath Jayasinghe

Prabhath Jayasinghe

University of Colombo - Department of Business Economics

Albert K.C. Tsui

National University of Singapore (NUS) - Department of Economics

Date Written: July 4, 2014

Abstract

This paper uses time-varying second moments to investigate exchange rate exposure betas. Using a BEKK-GARCH(1,21)-M model, time-varying exchange rate exposure betas are obtained with explicit focus on the non-orthogonality between exchange rate changes and market returns. We look into certain aspects of the stochastic structure underlying the exposure betas. An important finding of the paper is that, although exchange rate exposure betas are likely to vary over time, they follow mean-reverting long-memory processes. The presence of mean-reverting exchange rate exposure coefficients has important implications for investment and hedging strategies.

Keywords: time-varying exchange rate exposure; multivariate GARCH-M models; international CAPM; fractionally integrated processes

JEL Classification: C22, F31, F37, G12, G15

Suggested Citation

Jayasinghe, Prabhath and Tsui, Albert K.C., Time-Varying Exchange Rate Exposure Coefficients (Exposure Betas): Evidence from Country Level Stock Returns (July 4, 2014). Sri Lanka Journal of Economics, Vol. 10, No. 2, December 2009, Available at SSRN: https://ssrn.com/abstract=2462532

Prabhath Jayasinghe (Contact Author)

University of Colombo - Department of Business Economics ( email )

Department of Business Economics
Colombo 3, Western
Sri Lanka

Albert K.C. Tsui

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Republic of Singapore

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