Foreign exchange rate exposure: Evidence from Canada

Abstract

Using weekly data from 2003 to 2011, this paper examines the presence of exchange rate exposure in thirteen Canadian industry sectors. This study contributes to the literature in a number of ways: (i) it considers the presence of exposure not only in the full sample but also in the pre and post-Global Financial Crisis (GFC) periods, (ii) it considers both linear and nonlinear exposure and (iii) it makes use of the sign and size bias tests to investigate the presence of asymmetric exposure. In general, we find some evidence of linear and nonlinear exposure in the full sample as well as in the pre and post-GFC sub-samples. We also find weak evidence of an asymmetric exposure sign effect on stock returns in the full and pre-GFC sample periods. Stock returns are found to respond asymmetrically to the positive magnitude of exposure in both the-pre and post-GFC sample periods. In overall terms, the GFC appears to have weakly contributed to the overall strength of the exposure.