قیمت گذاری ریسک ارز خارجی در بازار سهام استرالیا

The issue of whether foreign exchange risk is priced in financial markets is important in the context of international investment and diversification. Primarily using daily data, we implement a two-factor asset pricing model (incorporating a market factor and an exchange rate factor) in an attempt to provide some insight into the pricing of foreign exchange risk in the Australian equities market for the period 1988–1998. Initially testing a basic version of the model, we find that exchange rate risk is priced in the Australian equities market for the full sample period. Further, our analysis of four major subperiods indicates that the pricing occurs in periods of economic decline and a secularly weak Australian dollar (namely, 1990–1993 and 1997–1998). We extend our investigation by testing a zero-beta version, as well as an orthogonalized version, of the same model. The results of both analyses support our initial findings.

Do investors earn a premium from being exposed to foreign exchange risk? This question is arguably one of the most important confronting financial managers internationally. With the implementation of flexible exchange rate regimes and the opening of markets across the world, the issue of whether foreign exchange risk is priced in stock markets or whether indeed hedging strategies add no value to the firm has become increasingly prominent in the financial decision-making process. In recent times, several studies have attempted to address this issue. Using an unconditional multi-factor pricing model with the assumption that the currency-risk premium remains constant over time, Jorion (1991) investigates the US stock market. He reports that although there is evidence of the relationship between stock returns and the exchange rate differing systematically across industries, there is no evidence that foreign exchange risk is priced in the market. In general, Jorions's (1991) results are supported by Loudon (1993b) in his study of the Australian equities market for the period 1980–1991. However, contrary findings (that is, evidence that foreign exchange risk is in fact priced) are reported by other empirical studies, for example Korajczyk and Viallet (1992), Ferson and Harvey (1994), Dumas and Solnik (1995), DeSantis and Gerard (1998), Choi et al. (1998) and Doukas et al. (1999). Specifically, Dumas and Solnik (1995) and DeSantis and Gerard (1998), implementing a conditional international asset pricing model and using stock market indices, report that the foreign exchange risk is priced for equity and currency markets of Germany, the UK, Japan and the US. Consistent with these studies, Doukas et al. (1999) allow the risk premium to change through time in their investigation of the pricing of currency risk in Japan. Their findings suggest that currency risk is priced for multinationals and high-export Japanese firms. Choi et al. (1998) also report that foreign exchange risk is priced in the Japanese stock market. Employing the bilateral yen/US dollar exchange rate, as well as a trade-weighted exchange rate, their investigation provides evidence of the pricing of foreign exchange risk using both a conditional and an unconditional model. The current study investigates the pricing of foreign exchange risk in the Australian equities market for the period 1988–1998 in a multi-factor asset pricing model. Specifically, consistent with much of the relevant literature (see, for example, Jorion, 1991; Loudon, 1993a and Loudon, 1993b), we keep things simple by using a two-factor asset pricing approach – namely, a market factor and a foreign exchange factor.1 Within this framework, primarily we examine the pricing of foreign exchange risk using one bilateral exchange rate factor – the AUSUSD.2 Our analysis of the Australian market is motivated by several factors. First, the paucity of empirical evidence in the area of foreign exchange risk pricing in the Australian market. Beyond Loudon's (1993b) investigation there is, to our knowledge, no other published study in this area of research. Further, our data set extends well past 1991, the final year of Loudon's (1993b) analysis. Second, we attempt to redress the concern of data-snooping (see, for example, Leamer, 1983; Lo and Mackinlay, 1990). Notably, this issue has been specifically identified in prior foreign exchange risk pricing literature, see, for example, Doukas et al. (1999). They endeavour to deal with the matter by investigating the pricing of currency risk in Japan. Third, the relative importance of the Australian equities market in the Asia-Pacific region justifies our focus on this market. In addition to the issues outlined above, our analysis addresses a number of research design issues that have emerged from recently published empirical evidence in the general area of foreign exchange exposure. First, we implement several factors in a bid to provide some insight into the nature of the priced exchange risk premium if indeed it is found to exist in the Australian equities market. Next, we investigate the time-varying nature of the risk premium by undertaking our analysis using yearly breaks. We adopt a similar approach to Maher (1997) in which he investigates the interest-rate risk of holding banking companies from 1976 to 1989.3 Data frequency employed in the analysis of foreign exchange exposure is another research design issue. This issue has in fact received some attention in recent empirical developments. For example, Chamberlain et al. (1997), employing both daily and monthly data, investigate the foreign exchange exposure of U.S. and Japanese banking institutions and report that daily data provide better evidence of foreign exchange sensitivity than monthly data. This finding contrasts with prior studies that provide weak results. Upon comparing monthly and daily estimations, Chamberlain et al. (1997) conclude that the relative strength of their findings is a consequence of using daily data, which made it easier to discern firm level foreign exchange exposure. Accordingly, in the current study we employ daily data and we test the robustness of our results by undertaking the analysis using monthly data. A final issue addressed by this study that has emerged from recent literature in the area of asset pricing is the role of industrial sectors. Specifically, previous analysis of the Australian equities market seems to indicate a difficulty in the pricing of the resources sector (see, for example, Ball and Brown, 1980; Ball, 1986; Dolan, 1997; Ord, 1998). Consequently, although primarily we investigate the full sample of industries as a whole (ASX 1 to ASX 24), we also investigate the Resources sector subsample (ASX 1 to ASX 5) and the Industrial sector subsample (ASX 6 to ASX 24) separately. The remainder of the paper is organised as follows. We discuss the data used in the analysis in Section 2, we outline the empirical methodology in Section 3 and we report our results in Section 4. Our concluding remarks are contained in Section 5.

Our study investigates the pricing of foreign exchange risk in the Australian equities market for the period 1988–1998 using the AUDUSD exchange rate factor. We implement several variations of a two-factor asset pricing model, using a systems GMM approach to undertake our analysis. The models tested are (i) a basic two-factor ‘market and exchange rate’ asset pricing model; (ii) a ‘zero-beta’ version of the two-factor model and (iii) an orthogonalised two-factor model. Further, although primarily we examine the full sample set of industry classifications in the Australian market, we also examine the Resource and the Industrial sectors separately in a bid to obtain further insight into the issue of the pricing of foreign exchange risk in the market. In addition, we also investigate (i) four major subperiods that denote secular trends in the exchange rate; and (ii) yearly segments, where the sample is divided into eleven annual periods. The analysis is primarily undertaken implementing daily data, although the robustness of our results is tested by the use of monthly data. Generally, our results are somewhat mixed and inconclusive. However, the following comments can be made. First, regardless of the model specified, the GMM test results were largely statistically insignificant at the 5% level and therefore the model in each case could not be rejected. Second, partitioning the sample into the four major subperiods provides greater insight into the nature of the pricing of foreign exchange risk in the Australian equities market. Specifically, although our results strongly suggest that foreign exchange risk is priced for the full sample period 1988–1998, in examining the major subperiods, we observe that it is only priced in the subperiods 1990–1993 and 1997–1998. Both of these periods marked times of relative weakness and uncertainty in the Australian economy, as well as a secularly weak Australian dollar. Finally, in terms of the outcome of our primary GMM tests, there is little evidence of a differential performance between the Resource sector and the Industrial sector of the market in our basic two-factor model analysis. Although our results give some insight into the pricing of foreign exchange risk in the Australian equities market, they indicate the need for further research. For example, prior studies (for example, Dumas and Solnik, 1995; DeSantis and Gerard, 1998; Doukas et al., 1999), seem to suggest a role for time-varying foreign exchange risk premia. Therefore, analysis examining the issue of whether foreign exchange risk is priced in a framework which allows the premia to change through time is an area for future investigation. Further, the basic two-factor framework implemented in the current paper could be extended to a more comprehensive multi-factor model, following the Fama and French (1996) approach.