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Title: Exchange rate exposure of sectoral returns and volatilities: Evidence from Japanese industrial sectors
Authors: Jayasinghe, P.
Tsui, A.K. 
Keywords: Asymmetric volatility spillovers
Conditional correlation
Exchange rate exposure
GARCH-type models
Issue Date: 2008
Citation: Jayasinghe, P., Tsui, A.K. (2008). Exchange rate exposure of sectoral returns and volatilities: Evidence from Japanese industrial sectors. Japan and the World Economy 20 (4) : 639-660. ScholarBank@NUS Repository.
Abstract: Most studies of exchange rate exposure of stock returns do not address three relevant aspects simultaneously. They are, namely: sensitivity of stock returns to exchange rate changes; sensitivity of volatility of stock returns to volatility of changes in foreign exchange market; and the correlation between volatilities of stock returns and exchange rate changes. In this paper, we employ a bivariate GJR-GARCH model to examine all such aspects of exchange rate exposure of sectoral indexes in Japanese industries. Based on a sample data of fourteen sectors, we find significant evidence of exposed returns and its asymmetric conditional volatility of exchange rate exposure. In addition, returns in many sectors are correlated with those of exchange rate changes. We also find support for the "averaged-out exposure and asymmetries" argument. Our findings have direct implications for practitioners in formulating investment decisions and currency hedging strategies.©2007 Elsevier B.V. All rights reserved.
Source Title: Japan and the World Economy
ISSN: 09221425
DOI: 10.1016/j.japwor.2007.07.003
Appears in Collections:Staff Publications

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