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Journal of Economic Integration 2017 March;32(1) :112-159.
DOI: https://doi.org/10.11130/jei.2017.32.1.112
Exchange Rate Exposure
: International Evidence from Daily Firm-Level Data
Bang Nam Jeon
Dazhi Zheng and 
Lei Zhu 
Drexel University, Philadelphia, United States
West Chester University of Pennsylvania, West Chester, United States
Corresponding Author: Bang Nam Jeon ,Tel: +16102203461, Fax: +12158956156, Email: jeonbana@drexel.edu
Copyright ©2017 Journal of Economic Integration
ABSTRACT
This paper examines impact of changes in the foreign exchange rate on firms’ stock returns in global markets. Using daily firm-level data for 14 international markets from January 2000 to December 2011, we find evidence that changes in the trade-weighted multilateral exchange rate systematically impact individual firms’ stock returns for all seven emerging markets and some advanced economies. Controlling for price factors such as market risk premium, Fama-French factors, the momentum, and the liquidity factor, we correct the upward bias of the estimation. Stocks in export-oriented economies are shown to considerably benefit from local currency depreciation. Further, in emerging markets, exchange rate movements affect larger firms with more intense global connections, but in advanced markets, they affect smaller firms with limited access to hedging to a larger extent. Long-run equilibrium relationships between stock markets and foreign exchange markets become stronger since the global financial crisis of 2008~2009.

JEL Classification
G12: Asset Pricing; Trading volume; Bond Interest Rates
G15: International Financial Markets
F31: Foreign Exchange
Keywords: Exchange Rate Exposure | International Stock Markets | Emerging Markets
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