The time-varying exposure of Malaysian non-financial firms using panel and OLS analyses

Abstract

Motivated by the different levels of currency exposure under different financial periods in developing country, this paper analyses the exposure level in Malaysia by adopting the time-varying method to examine the monthly stock returns reaction to Malaysian Ringgit fluctuations. The study incorporates both the symmetric and asymmetric movements of currency exposure. Inclusion of five sub-periods comprising two financial crises and pegging regime into the analyses showed decreasing exposure levels throughout the sub-periods. This signals the possibility of market advancement and better hedging practice in the market after the Asian financial crisis (AFC). Secondly, the study manages to provide evidence of different significance levels during AFC, global financial crisis (GFC) and pegged periods. Hence, biased estimation is produced if the exposure is analysed irrespective to the significant financial events. Additionally, the Malaysian sample firms are also shown to mainly consists of importing firms as illustrated by the compositions of firms positively and negatively affected by the currency movements in each sub-period. Hence, the study asserts the currency exposure level in Malaysia is decreasing over the years despite remaining relatively high compared to the developed market.