The Response of Industry Stock Returns to Market, Exchange Rate and Interest Rate Risks
Manchester Business School Working Paper No. 491
21 Pages Posted: 19 Mar 2007
Date Written: January 2006
Abstract
This study investigates the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy and the UK. In addition to exposure to the market, significant levels of exposure to both exchange rate risk, in the four countries, and interest rate risk, in France and Germany, are identified. Further, responses to sources of risk are decomposed into components attributable to news about future dividends, real interest rates and excess returns. All three sources of risk contain significant information about future cash flows and excess returns.
Keywords: Exchange rate exposure, interest rate risk, stock returns
JEL Classification: F31, G12, G15
Suggested Citation: Suggested Citation
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