Abstract
The purpose of this paper is to study the foreign exchange risk exposure of Chilean firms. Recent papers suggest that small and open economies would be a better laboratory to explore this issue than more developed, and perhaps less open, economies. Our sample comprises 106 firms traded on the Santiago Stock Exchange. We use monthly returns and recently suggested empirical methods to test the relevance of economic exposure to the U.S. Dollar and to the ECU since the adoption of a floating exchange rate in Chile. Our evidence indicates that economic exposure is important and that the U.S. Dollar has stronger exposure effects for Chilean firms. We find that the percentage of firms significantly exposed is much higher than that found in previous studies for developed countries, and that most of the sample firms suffer with a depreciation of the Chilean peso. We do not find reliable evidence of asymmetric exposure, but nonlinear effects appear to be important in our sample.
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