FOREIGN EXCHANGE EXPOSURE AND PRICING IN THE AUSTRALIAN EQUITIES MARKET: A FAMA AND FRENCH FRAMEWORK. Amalia Di Iorio* Robert Faff
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1 1 FOREIGN EXCHANGE EXPOSURE AN PRICING IN THE AUSTRALIAN EQUITIES MARKET: A FAMA AN FRENCH FRAMEWORK Amala Ioo* Robe Faff * Coespondng Auho: School of Economcs and Fnance RMIT Unvesy GPO Box 2476V Melboune, Vcoa, 3001 Ausala Tel: (03) Fax: (03) E-mal: amala.doo@m.edu.au
2 2 FOREIGN EXCHANGE EXPOSURE AN PRICING IN THE AUSTRALIAN EQUITIES MARKET: A FAMA AN FRENCH FRAMEWORK Absac: Ths sudy analyses he foegn exchange exposue of he Ausalan eques make o movemens n he Ausalan dolla/japanese yen (AUJPY) and he Ausalan dolla/us dolla (AUUS) n a Fama-Fench famewok usng boh daly daa and monhly daa. In addon o smply nvesgang exchange ae exposue by augmenng he Fama-Fench hee faco model wh he exchange ae faco, hs pape examnes he naue of exchange ae exposue n a numbe of dffeen sengs. Specfcally, exploes () he possbly of an asymmec esponse; () s neempoal sably ove he sample peod; () he effec of nceasng eun measuemen nevals; and (v) he pcng of exchange ae sk n he Ausalan eques make. Ths sudy also nvesgaes a possble lagged esponse o flucuaons n he exchange ae faco. Alhough he esuls ae mxed, a summay of he oucome of ou nvesgaon s as follows: () daly daa povdes songe esuls han monhly daa; () hee s some evdence of a lagged esponse; () mplemenng he AUUS exchange ae faco povdes songe esuls n he basc mul-faco and he sably analyses; (v) hee s some evdence of a weak asymmec esponse, neempoal sensvy and pcng of exchange ae sk n he Ausalan eques make; (v) hee s evdence ha exchange ae exposue nceases as he eun nevals ncease; (v) he Fama-Fench book-o-make faco and sze faco ae songly sgnfcan houghou each of he analyses, hence suppong he Fama-Fench famewok. Keywods: Exchange Rae Rsk; Ausalan Sock Make; Fama and Fench Facos JEL Classfcaons: G12 af: ecembe 2001 No o be quoed whou he pemsson of he auhos.
3 1. Inoducon 3 Recen empcal sudes have epoed mxed fndngs n he aea of foegn exchange exposue. Alhough he elaonshp beween flucuaons n he exchange ae and euns o shaeholdes s one whch s clealy obsevable (as evdenced by he Asan fnancal css of he lae 1990 s), empcally would seem ha has emaned dffcul o boh denfy and quanfy. Snce Joon (1990), a numbe of sudes have aemped o examne he mpac of exchange ae exposue on sock euns [see, fo example, Loudon (1993a); Khoo (1994); Baov and Bodna (1994); Bodna and Geny (1993); He and Ng (1998); Shn and Soenon (1999); and Ioo and Faff (2000)]. Howeve, only a few have been successful n esablshng sgnfcan exchange ae sk exposue. The pessence of weak empcal evdence n hs aea of fnance eseach has gven se o a numbe of eseach desgn ssues, fo example, a poenal asymmec effec nduced by non-lnea hedgng saeges, such as cuency opons. Bodna and Geny (1994, p. 1761) befly allude o hs ssue as one of he complexes facng nvesos ha may lead hem o make sysemac eos n assessng he elaonshp beween he fm s value and exchange ae changes. In he nvesgaon of he Ausalan eques make, Ioo and Faff (2000) n fac fnd some evdence of asymmey n foegn cuency exposue. Implemenng an augmened make model and usng a dummy vaable specfcaon o model he poenal asymmey, hey fnd evdence of an asymmec esponse n Ausalan sock euns fo mos of he weny-fou ndusy ndces used n he sudy. A fuhe eseach desgn ssue s ha of daa fequency. Whle many sudes mplemen monhly daa [see, fo example, Joon (1990); Loudon (1993a,b); Chow, Lee and Sol (1997a,b); He and Ng (1998)], Chambelan, Howe and Poppe (1997) epo ha he use of daly daa sgnfcanly nceases he deecon of foegn exchange sensvy. Ioo and Faff (2000) also fnd songe evdence of foegn exchange exposue when employng daly daa.
4 4 Ohe eseach desgn ssues ha have emeged fom sudes n exchange ae exposue ae as follows. Fs, ecen nvesgaons have suggesed ha he elaonshp beween exchange ae flucuaons and sock euns canno be capued conempoaneously, fo example, Amhud (1994); Baov and Bodna (1994); Shn and Soenen (1999); and Ioo and Faff (2000), all epo a lagged elaon beween movemens n he exchange ae and sock pce pefomance. Second, anohe ssue ha has pomped nvesgaon s ha of lenghenng he eun measuemen neval. Chow e al. (1997a,b) ague sho hozon euns conan eos made by nvesos n foecasng he long-em effecs of cuen exchange ae changes and fnd evdence ha he foegn exchange exposue of ndvdual fms nceases wh lenghenng eun hozons. Chow and Chen (1998) also employ dffeen me hozons o nvesgae foegn exchange exposue. Thd, he queson of whehe o no exchange ae exposue s sable hough me s one ha eques examnaon. Alhough he ssue of neempoal sably has been suded n ohe aeas of fnance eseach [see, fo example, Mahe (1997)], hee appeas o be a lack of empcal evdence n he aea of foegn exchange exposue. Indeed, could be ha much of he po weak evdence n he analyss of exchange ae exposue may sem fom he unsable naue of s coeffcen ove me. Fnally, he ssue of whehe exchange ae sk s pced n fnancal makes s mpoan n he conex of nenaonal nvesmen and dvesfcaon. In ecen mes, seveal sudes have aemped o addess hs ssue. Usng an uncondonal mul-faco pcng model wh he assumpon ha he cuency sk pemum emans consan ove me, Joon (1991) nvesgaes he US sock make. He epos ha alhough hee s evdence of he elaonshp beween sock euns and he exchange ae dffeng sysemacally acoss nduses, hee s no evdence ha foegn exchange sk s pced n he make. In geneal, Joon's (1991) esuls ae suppoed by Loudon (1993b) n hs sudy of he Ausalan eques make fo he peod 1980 o Howeve, conay fndngs (ha s, evdence ha foegn exchange sk s n fac pced), ae epoed by ohe empcal sudes, fo example Koajczyk
5 and Valle (1992); Feson and Havey 5 (1994); umas and Solnk (1995); esans and Gead (1998); Cho, Hak and Takezawa (1998); and oukas, Hall, and Lang (1999). Thus, s clea ha he analycal leaue n he aea of exchange ae exposue has povded mxed esuls. In a bd o povde cleae nsgh no he elaonshp beween movemens n he exchange ae and sock euns, hs sudy addesses he ssues oulned above n a Fama and Fench (1993) famewok. Whle mos empcal sudes n he aea of foegn exchange exposue mplemen a mul-faco famewok based on he Capal Asse Pcng Model, he cuen sudy nvesgaes hs ype of exposue usng he Fama-Fench hee-faco model. In he noable sudes, Fama and Fench (1992, 1993) epo he nsgnfcance of bea n explanng vaaons n equy euns. Moeove, hey denfy he sze and book-o-make value of equy as he wo sgnfcan pcng vaables. These fndngs ae suppoed by a numbe of ohe nvesgaons, ncludng Gnhold (1993); avs (1994); He and Ng (1994); and Fama and Fench (1995, 1996, 1998). Thus, mplemenng a Fama-Fench me sees based esng famewok, and () usng boh daly and monhly daa; and () employng he Ausalan olla/us olla (AUUS) and he Ausalan olla/japanese Yen (AUJPY) exchange ae facos, we analyse he elaonshp beween movemens n he exchange ae and Ausalan sock euns n ems of (a) a poenal lagged esponse; (b) a poenal asymmec esponse; (c) neempoal sably; and (d) he mpac of nevalng. In addon, we nvesgae he pcng of exchange ae exposue n he Ausalan eques make usng he same famewok. The emande of hs pape s sucued as follows. Secon 2 oulnes he empcal famewok mplemened, Secon 3 dscusses he esuls of ou nvesgaon and Secon 4 conans ou concluson.
6 2.0 aa and Empcal Famewok aa In hs sudy, we employ boh daly and monhly euns daa, whch nclude boh dvdends and capal adjusmens (as pefomed by aaseam). Fs, connuously compounded daly euns [.e. ln (P / P -1 )] on he weny-fou ndusy ndces epesened n he Ausalan sock make wee obaned fom aaseam. The peod of ou daly analyss nvolves 618 obsevaons fom 30 Apl 1996 o 30 Sepembe In an aemp o nvesgae he neempoal sably of he exchange ae exposue, we dvde he full sample peod no wo subpeods - 30 Apl 1996 o 7 May 1997 and 8 May 1997 o 30 Sepembe Specfcally, he beak concdes wh he peod jus po o he Asan fnancal css. Monhly euns fo he peod 31 ecembe 1990 o 30 Sepembe 1998 wee also used n ou nvesgaon. Ths sample compsed of 93 obsevaons fo all nduses excep he fou nduses. 2 The poxy fo he make pofolo used s he All Odnaes Accumulaon Index suppled by aaseam, whle he sk-fee ae of eun s poxed by he 3-monh Ausalan Teasuy Bll ae. The exchange ae faco eun [.e. ln (FX / FX -1 )] s based on he Ausalan dolla elave o: (a) he US dolla (AUUS); (b) he Japanese yen (AUJPY); and (c) he ade weghed ndex (AUTWI), also obaned fom aaseam. 3 The daa used o consuc he Fama and Fench SMB and HML facos ae fou of he Ausalan equy syle ndexes poduced by he Fank Russell company usng ASX daa. These ndexes ae known as he ASX/Rusell ndexes. Alhough a full dscusson and descpon of he ndexes s beyond he scope of hs pape, we know ha: (a) each sock n he All Odnaes Index s anked accodng o s pce o ne angble asses (P/NTA) ao; 1 Fo weny-one nduses we have complee daa ove hs sample peod. aa fo he emanng nduses ae as follows: () Sold Fuels (ASX3); Ol and Gas (ASX4); and Enepeneual Invesos (ASX18) exends fom 29 Apl 1996 o 29 Ocobe These ae () Sold Fuels (ASX3); Ol and Gas (ASX4); and Enepeneual Invesos (ASX18), fo whch daa exends fom 29 Apl 1996 o 29 Ocobe 1996; and Tousm and Lesue (ASX24) fo whch daa exends fom 8 Augus 1994 o 30 Sepembe Alhough he pncpal blaeal exchange ae used n hs sudy s he AUUS, we also es he AUJPY exchange ae faco. Ou choce of he AUUS and he AUJPY s suppoed by he fac ha Japan and he US ae Ausala s wo mos mpoan adng panes.
7 7 (b) a non-lnea pobably algohm s appled o he dsbuon o deemne he syle membeshp weghs; (c) (d) 70% of companes by numbe ae classfed as all value o all gowh; 30% of companes ae weghed popoonaely by boh value and gowh. Specfcally, he syle ndexes chosen ae (a) he ASX/Russell Value 100 TM Index (compses of appoxmaely 71 companes ha all belong o he ASX 100 and have been classfed as havng low P/NTA aos); (b) he ASX/Russell Gowh 100 TM Index (compses of appoxmaely 75 companes ha all belong o he ASX 100 and have been classfed as havng hgh P/NTA aos); (c) he ASX/Russell Small Value 100 TM Index (compses of appoxmaely 180 companes ha all belong o he Small Odnaes and have been classfed as havng low P/NTA aos); (d) he ASX/Russell Small Gowh 100 TM Index (compses of appoxmaely 94 companes ha all belong o he Small Odnaes and have been classfed as havng hgh P/NTA aos). These ndexes ae econsued annually (31 ecembe) o eflec changes n he make. We used he ndexes o calculae suable poxes fo he small mnus bg sze faco (o SMB ) and he hgh mnus low book-o-make faco (o HML ) n he followng way: and RSV + RSG RV RG 100 SMB = (1) 2 2 RV RSV RG RSG HML = (2) 2 2 whee R SV = Reun on he ASX/Russell Value 100 TM Index n peod ; RSG = Reun on he ASX/Russell Gowh 100 TM Index n peod ; R V100 = Reun on he ASX/Russell Small Value 100 TM Index n peod ; R G100 = Reun on he ASX/Russell Small Gowh 100 TM Index n peod.
8 8 2.2 Basc Augmened Fama-Fench Model The convenonal wo-faco augmened make model s specfed as follows: R = α + β + e... (3) m x whee R s he eun on he h asse o pofolo n day, m s he eun on he make ndex n day and x s he eun on he exchange ae faco n day expessed n Ausalan dollas. Thus, an appecaon (depecaon) of he Ausalan dolla wll poduce a posve (negave) value fo x. In a smla conex o ous, Bodna and Geny (1994, pp. 1761) oulne a lagged esponse hypohess n whch s agued ha a deecable esponse o exchange ae movemens may no occu conempoaneously. Thus, especfyng equaon (3) n a Fama-Fench famewok and ncopoang a lagged exchange ae vaable, he model becomes: R α + e... (4) = + βm + ssmb + hhml 1 x 2 x 1 whee SMB s he eun of he mmckng pofolo fo he sze faco and HML s he eun of a mmckng pofolo fo he book-o-make faco. 2.3 Augmened Fama-Fench Model Incopoang Asymmec Foegn Exchange Exposue Effec Hedgng saeges epesen an mpoan mehod of managng foegn exchange exposue. Alhough a numbe of such saeges may be mplemened, cuency opons ae commonly used and hs may gve se o an asymmey n foegn exchange exposue. To examne hs possbly we se up a dummy vaable enhanced model. Specfcally, hee dummy vaables ae denfed: (a) a vaable, pos,x, ha capues posve movemens of a leas x pecen; (b) a vaable neg,x, ha capues negave movemens of
9 a leas x pecen; and (c) a vaable neu,x, ha 9 capues all ohe cases, desgnaed as neual cases. Moe fomally hese dummy vaables ae defned as follows: pos,x s a dummy vaable ha akes a value of uny n peod f he exchange ae has appecaed by moe han x pecen n ha peod and a value of zeo ohewse; neg,x s a dummy vaable ha akes a value of uny n peod f he exchange ae has depecaed by moe han x pecen n ha peod and a value of zeo ohewse; neu,x s a dummy vaable ha akes a value of uny when boh posx and neg,x ae zeo and a value of zeo ohewse. To accommodae hs analyss he man model of (4) s e-specfed ulsng he appopaely defned dummy vaables as follows: R = α + β + s SMB + h HML + e m pos pos, xx negneg, xx neu neu, x...(5) Agan, he specfcaon s adjused o accommodae lagged values of he asymmec effecs as follows: R = α 2, pos + β m + s SMB + h HML 1, pos pos, x 1, neg neg, x pos, 1 1 2, neg neg, 1 1 2, neu neu, 1 1 x x + e 1, neu neu, x x x We es model (6) fo he fle paamee of 0.02 (o 2%) fo monhly daa. 4...(6) 4 The choce of 2% as a fle paamee s abay. I epesens a compomse ha, ex pos, esuls n a easonable numbe of cases n each caegoy.
10 Augmened Fama-Fench Model Incopoang Inevalng Foegn Exchange Exposue Effec The nably o sasfacoly measue he elaonshp beween foegn exchange exposue and sock euns pesens an neesng ssue n nenaonal fnance eseach. One possble eason fo hs s poposed by Chow Lee and Sol (1997a,b) who ague sho-hozon euns conan eos made by nvesos n foecasng he long-em effecs of cuen exchange-aes changes. They conend, heefoe, ha by egessng long-hozon sock euns on coespondng longhozon exchange ae changes, he ue naue of foegn exchange exposue may be capued snce fms ypcally hedge sho-em (o ansacon) foegn exchange exposue bu ae less successful n managng long-em (o economc) exposue. Indeed, Chow e al. (1997 a,b) suppo he agumen by he esuls of he analyss whch povdes evdence ha he foegn exchange exposue of ndvdual fms nceases wh lenghenng eun hozons. By s vey naue, economc exposue s dffcul o ascean and hedge and hence s agued ha nvesos can only accuaely dscen he mpac of flucuaons n he exchange ae on he fm s cash flows wh he passage of me. In ode o examne he mpac of nevalng on he foegn exchange exposue of Ausalan sock euns we e-specfy equaon (4) n he followng way:, + T = α + β m, + T + s SMB, + T + h HML, + T + T + ε...(7) whee,+t s he eun on he h asse o pofolo on hozon/neval fom o +T, m,+t s he eun on he make ndex on hozon/neval fom o +T, SMB,+T s he eun on he mmckng pofolo fo he sze faco on hozon/neval fom o +T; and HML,+T s he eun on he mmckng pofolo fo he book-o-make faco on hozon/neval fom o +T and +T s he eun on he exchange ae faco on hozon/neval fom o +T (T equals1, 3, 6, 12, 24, 36 and 48 monhs when employng monhly base daa). By he vey naue of hs analyss, n ode o acheve adequae sample szes, ovelappng obsevaons esul fo eun
11 11 hozons geae han one monh. Fuhe, n an aemp o esolve he poblem of auocoelaed eo ems asng fom ou ovelappng hozons, we mplemen Hansen s (1982) genealsed mehod of momens (GMM) echnque. Ths mehod adjuss he vaance-covaance max of he esmaed coeffcens fo boh heeoskedascy and auocoelaon n he eo ems. 2.5 Tesng he Zeo-Bea Veson of a Fou-Faco Model The Fama and Fench hee-faco asse pcng model n zeo-bea fom augmened by an exchange ae faco s specfed as follows: E( ) = γ 0 + βm *[ E( m ) γ0] + βx *[ E( x ) γ0] + se( SMB) + h E( HML)... (8) o E( ) = γ 0 (1 β β ) + β E ( ) + β E ( ) + s E( SMB) h E( HML)... (9) m x m m x x + whee γ 0 s he expeced excess eun on he zeo-bea pofolo. Empcally, we specfy he model as: = α + β + s SMB + h HML + β + ε...(10) m m x x Afe applyng expecaons o equaon (10) and compang o equaon (9), we obseve he non-lnea escon [Gbson (1982)] ha consues he null hypohess: H 0 : α 0 m x Theefoe, equaon (10) s especfed as: = γ * (1 β β ) ; = 1,2,3.n... (11) = γ ) + (1 β m β x + β mm + ssmb + hhml + β xx ε...(12) 0 In ou GMM seup we adop he esced fom of (12) and hen add equaons ha model he means of each of he ndependen vaables: m = λ m + ε...(13) = λ + υ...(14) x x
12 SMB HML SMB 12 = λ + ζ...(15) = λ + ω...(16) HML The empcal sysem of (12), (13), (14), (15) and (16) nvolves 5N +4 sample momen equaons, wh 4N+5 unknown paamees o be esmaed hus he GMM sasc nvolves N- 1 ove-denfyng escons and s heefoe dsbued ch-squae wh N-1 degees of feedom. In he conex of hs sysem of equaons, n addon o he basc GMM es oulned above, he es of he hypohess ha each expeced pemum s zeo.e. H 0 : λ m = 0; H 0 : λ x = 0; H 0 : λ SMB = 0; H 0 : λ HML = Resuls 3.1 Fama-Fench Model Augmened by he Exchange Rae Faco Table 1 epos he esuls of he basc Fama -Fench model augmened by he AUUS exchange ae faco usng daly daa. 5 [TABLE 1 ABOUT HERE] The fndngs of hs analyss ae summazed as follows. Fs, and as expeced, each of he weny-fou make bea coeffcens ae sascally sgnfcan a he fve pecen sgnfcance level and ae posve n sgn. Second, heen sze bea coeffcens ae sascally sgnfcan. All ae sgnfcan a he 5 pecen level and en (hee) ae posve (negave). The hghes coeffcen (0.8809) s obseved fo ASX 1 Gold, whle he lowes s obseved fo ASX 5 vesfed Resouces ( ). Thd, egh (nne) book-o-make bea coeffcens ae sascally sgnfcan a he fve (en) pecen level. Fve (fou) coeffcens ae posve 5 A counepa analyss usng monhly daa was also conduced ove a sample peod 1991 o When compang he esuls epoed n Table 1 wh hose usng monhly daa, we noe ha he fndngs of he daly base daa analyss ae moe nsghful (n he sense of delveng a geae degee of sascal sgnfcance) han hose esulng fom he monhly base daa analyss. The monhly daa esuls ae no epoed o conseve space, bu ae avalable fom he auhos upon eques.
13 13 (negave). ASX 16 Banks ecods he hghes HML bea coeffcen (0.4246) and ASX 15 Meda ecods he lowes ( ). Fuhe, when compang he sze faco esuls o he booko-make esuls, s obseved ha sx ndusy pofolos ecod a sascally sgnfcan bea coeffcen fo boh facos. These ae: ASX 7 Buldng Maeals; ASX 15 Meda; ASX 16 Banks; ASX 19 Invesmen and Fnancal Sevces; ASX 20 Popey Tuss and ASX 22 Mscellaneous Indusals. Conssen wh he fndngs of Baov and Bodna (1994), he exchange ae faco esuls of ou analyss seem o sugges a sgnfcan lagged esponse. Alhough only wo (fou) conempoaneous bea coeffcens ae sascally sgnfcan a he fve (en) pecen level, we fnd en (welve) lagged bea coeffcens ae sgnfcan a he same especve levels. Ou esuls ndcae () ASX 1 Gold; ASX 2 Ohe Meals; and ASX 20 Popey Tuss expeence boh conempoaneous and lagged exchange ae exposue; () ASX 11 Engneeng expeences only conempoaneous exposue; and () ASX 3 Sold Fuels; ASX 5 vesfed Resouces; ASX 9 Food and Household Goods; ASX 14 Tanspo; ASX 15 Meda; ASX 16 Banks; ASX 17 Insuance; ASX 18 Enepeneual Invesos; and ASX 21 Mscellaneous Sevces; ae subjec o lagged exchange ae exposue. 6 6 A counepa daly daa analyss elave o he AUJPY was also conduced ove he sample peod 1 May 1996 o 30 Sepembe In compang hese esuls o hose n Table 1, appeas ha () he exchange ae exposue of he Ausalan eques make s geae o he AUUS han o he AUJPY; and () he exposue o boh exchange ae facos s lagged ahe han conempoaneous. These esuls ae no epoed o conseve space, bu ae avalable fom he auhos upon eques.
14 3.2 Tess of foegn exchange exposue sably usng Fama-Fench Model 14 Table 2 epos he esuls of an analyss of he AUUS exchange ae faco fo he subpeods 1 May 1996 o 7 May 1997 and 8 May 1997 o 30 Sepembe The nvesgaon employs daly daa. [TABLE 2 ABOUT HERE] Fs, as expeced, he make bea coeffcen s posve and sascally sgnfcan a he fve pecen level fo each of he weny-fou ndusy pofolos n each of he wo subpeods. Second, fo he subpeod 1 May 1996 o 7 May 1997, en (eleven) ndusy pofolos ecod sascally sgnfcan sze faco coeffcens a he fve (en) pecen level. Specfcally, ASX 1 Gold; ASX 5 vesfed Resouces; ASX 11 Engneeng; ASX 16 Banks; ASX 17 Insuance; ASX 19 Invesmens & Fnancal Sevces; ASX 20 Popey Tuss; ASX 22 Mscellaneous Indusals; ASX 23 vesfed Indusals; and ASX 24 Tousm & Lesue; ae sgnfcan a he fve pecen level, whle ASX 10 Chemcals s sgnfcan a he 10 pecen level. Of hese ASX 1 Gold; ASX 5 vesfed Resouces; ASX 16 Banks; ASX 17 Insuance; ASX 19 Invesmen and Fnancal Sevces; ASX 20 Popey Tuss; also ecod a sascally sgnfcan book-o-make coeffcen a he fve pecen level, whle ASX 11 Engneeng; and ASX 22 Mscellaneous Indusals; ecod a sgnfcan book-o-make coeffcen a he en pecen level. Indusy pofolos ha exhb sensvy o he book-omake faco bu no o he sze faco ae: ASX 4 Ol and Gas; ASX 7 Buldng Maeals; ASX 9 Food and Household Goods; ASX 13 Real; and ASX 15 Meda. The coeffcens n each of hese cases ae sgnfcan a he fve pecen level. Fuhe, when consdeng he exchange ae exposue fo he subpeod 1 May 1996 o 7 May 1997, s obseved ha fou (sx) ndusy pofolos exhb conempoaneous sensvy a he fve (en) pecen level. These ae ASX 1 Gold; ASX 2 Ohe Meals; ASX 9 Food and
15 15 Household Goods; ASX 10 Chemcals; ASX 20 Popey Tuss; and ASX 21 Mscellaneous Sevces. ASX 1 Gold and ASX 21 Mscellaneous Sevces also exhb lagged sensvy, whle ASX 3 Sold Fuels; ASX 7 Buldng Maeals; ASX 15 Meda; and ASX 18 Enepeneual Invesos; ecod only sascally sgnfcan lagged coeffcens. Fo he subpeod 8 May 1997 o 30 Sepembe 1998 we obseve once agan ha he make bea coeffcens ae all sgnfcan a he fve pecen level and posve. Fuhe, welve (heen) nduses exhb sascally sgnfcan sze faco beas a he fve (en) level. Fewe sascally sgnfcan book-o-make beas ae epoed n he subpeod 8 May 1997 o 30 Sepembe 1998 han fo he subpeod 1 May 1996 o 8 May Seven (en) nduses exhb sascally sgnfcan exposue a he fve (en) sgnfcance. Ou fndngs fo he exchange ae exposue ndcae ha hee s a sgnfcan lagged esponse o he AUUS exchange ae faco. Of all he nduses n he Ausalan eques make only ASX 11 Engneeng exhbs conempoaneous exchange ae exposue n hs subpeod. Ths ndusy dd no exhb exchange ae exposue, conempoaneous o lagged n he subpeod 1 May 1996 o 7 May Howeve, nne (en) nduses exhb exchange ae exposue a he fve (en) pecen level. These ae ASX 1 Gold; ASX 2 Ohe Meals; ASX 5 vesfed Resouces; ASX 7 Buldng Maeals; ASX 9 Food and Household Goods; ASX 14 Tanspo; ASX 15 Meda; ASX 16 Banks; ASX 17 Insuance; ASX 20 Popey Tuss; and ASX 21 Mscellaneous Sevces. Of hese, ASX 2 Ohe Meals and ASX 21 Mscellaneous Sevces exhbed lagged exchange ae exposue fo he subpeod 1 May 1996 o 7 May We exended ou sably analyss by mplemenng he AUJPY exchange ae faco fo he same subpeods. Howeve, due o a lack of sgnfcan exchange ae evdence, we do no epo he esuls. The esuls ae avalable fom he auhos on eques.
16 Tess of foegn exchange exposue asymmey usng he Fama-Fench Model Table 3 epos he esuls of an asymmec analyss of he AUUS exchange ae faco. [TABLE 3 ABOUT HERE] The make bea coeffcens ae all sgnfcan and posve. The hghes value s ecoded by ASX 1 Gold and he lowes by ASX 21 Mscellaneous Sevces. Fuhe, seven (egh) sze faco and fou (fve) book-o-make bea coeffcens ae sascally sgnfcan a he fve (en) pecen level. Of hese, only wo ndusy pofolos ASX 19 Invesmen and Fnancal Sevces and ASX 20 Popey Tuss - ae obseved o have boh a sgnfcan sze and a sgnfcan book-o-make coeffcen. The emanng nduses ha exhb sensvy o he sze faco ae: ASX 1 Gold; ASX 2 Ohe Meals; ASX 5 vesfed Resouces; ASX 10 Chemcals; ASX 22 Mscellaneous Indusals; ASX 24 Tousm and Lesue. The only negave coeffcen s noed fo ASX 5 vesfed Resouces. ASX 7 Buldng Maeals; ASX 16 Banks; and ASX 21 Mscellaneous Sevces exhb sensvy o he book-o-make faco. Once agan, only one ndusy pofolo ecods a negave coeffcen ASX 21 Mscellaneous Sevces. Ineesngly, when consdeng he asymmec esponse of he exchange ae faco we obseve a songe conempoaneous, ahe han lagged, effec. A conempoaneous esponse s obseved n nne ndusy pofolos, whle sx ae found o exhb a lagged effec. Specfcally, when consdeng he conempoaneous sensvy of he Ausalan eques make, s obseved ha () sgnfcan posve coeffcens fo wo (sx) ndusy pofolos a he fve(en) pecen level; () sgnfcan negave coeffcens fo wo ndusy pofolos a he en pecen level; and () sgnfcan neual coeffcens fo wo (fou) ndusy pofolos a he fve(en) pecen level. I s noed ha wo pofolos ecod moe han one conempoaneous coeffcen. ASX 5 vesfed Resouces s obseved o have sgnfcan sensvy n each of he hee cases (ha s, posve, negave and neual) and ASX 9 Food and Household Goods ecods a
17 17 sgnfcan posve and negave coeffcen. Fuhe, () ASX 2 Ohe Meals; ASX 12 Pape & Packagng; ASX 16 Banks; and ASX 21 Mscellaneous Sevces; ecod only a posve conempoaneous coeffcen; () no ndusy pofolo exhbs only a negave conempoaneous coeffcen; and () ASX 8 Alcohol & Tobacco; ASX 13 Real; and ASX 20 Popey Tuss; ecod only a neual conempoaneous coeffcen. Thus, sx ndusy pofolos exhb a posve conempoaneous esponse, wo exhb a negave conempoaneous esponse, whle fou ecod a neual conempoaneous esponse. The esuls of he lagged asymmec analyss ae less encouagng. No ndusy pofolo ecods moe han one sascally sgnfcan coeffcen. We obseve, howeve, he followng: () ASX 1 Gold; and ASX 7 Buldng Maeals ecod a sgnfcan posve lagged coeffcen; () ASX 12 Pape & Packagng; ASX 13 Real and ASX 21 Mscellaneous Sevces ecod a negave lagged coeffcen; and () ASX 11 Engneeng ecods a sgnfcan neual coeffcen. Fuhe, when compang he esuls of he conempoaneous analyss o he lagged nvesgaon, no dscenble elaonshp(s) s (ae) obseved. 3.4 Analyss of nevalng of foegn exchange exposues usng Fama-Fench Model Table 4 epos he esuls of ou nvesgaon of 1 monh, 3 monh, 6 monh, 12 monh, 24 monh, 36 monh, and 48 monh measuemen nevals usng he AUUS exchange ae faco. [TABLE 4 ABOUT HERE] Of he seven hozons analyzed, he hghes ncdence of sgnfcan exchange ae coeffcens s epoed fo he weny-fou monh hozon, wh egheen (nneeen) nduses obseved o exhb exchange ae exposue a he fve (en) pecen level. The second hghes ncdence of exchange ae exposue s obseved fo he hy-sx monh measuemen neval
18 18 wh foueen (ffeen) nduses ecodng sascally sgnfcan coeffcens a he fve (en) pecen level. The numbe of sgnfcan coeffcens fo he emanng measuemen nevals ae a he fve (en) pecen level ae as follows () welve monh: welve (heen); () sx monh: eleven (heen); () one and hee monh especvely: en (eleven): and (v) foy-egh monh: nne (eleven). Thus, appeas ha he sgnfcance of foegn exchange exposue n he Ausalan eques make o he AUUS exchange ae faco s pmaly long-em, exendng acoss he 24 and 36-monh nevals. Of he weny-fou nduses, ove one-hd exhb sgnfcan exposue ove he hee long-em nevals. These ae ASX 1 Gold; ASX 5 vesfed Resouces; ASX 7 Buldng Maeals; ASX 9 Food and Household Goods; ASX 11 Engneeng; ASX 16 Banks; ASX 20 Popey Tuss; ASX 21 Mscellaneous Sevces and ASX 23 vesfed Indusals. In addon o hese, fve nduses exhb sgnfcan exposue a he 24 and 36 monh nevals - ASX 2 Ohe Meals; ASX 12 Pape and Packagng; ASX 13 Real; ASX 14 Tanspo; and ASX 15 Meda. We obseve ha he exchange ae coeffcen nceases n magnude n many cases epong sascally sgnfcan exchange ae exposue, fo example, ASX 7 Buldng Maeals; ASX 11 Engneeng; ASX 20 Popey Tuss; ASX 21 Mscellaneous Sevces; and ASX23 vesfed Indusals. Fuhe, we noe a evesal of sgn of he gamma coeffcen as he eun measuemen nevals lenghens fo hee nduses ASX 1 Gold; ASX 11 Engneeng; and ASX 23 vesfed Indusals. Ths s conssen wh Chow e al. (1997) who fnd a evesal of sgn n he majoy of fms analysed n he sudy. Smla fndngs ae also epoed by Joon (1990). Sgnfcan sho-em exposue, ha s 12-monh nevals o less, s epoed fo appoxmaely half of he weny-fou nduses. Of noe ae ASX 2 Ohe Meals; ASX 5 vesfed Resouces; ASX 10 Chemcals; ASX 15 Meda; ASX 16 Banks; ASX 18 Enepeneual Invesos; ASX 19 Invesmen & Fnancal Sevces; ASX 20 Popey Tuss;
19 19 ASX 21 Mscellaneous Sevces; and ASX 24 Tousm and Lesue; all of whch ae sascally sgnfcan fo a leas hee sho-em nevals. As obseved n he esuls fo long-em exposue, we noe an ncease n he magnude of he gamma coeffcens of some nduses ASX 2 Ohe Meals; ASX 5 vesfed Resouces; and ASX 24 Lesue and Tousm. Howeve, ASX 15 Meda; ASX 16 Banks; and ASX 21 Mscellaneous Sevces, all of whch exhb negave exposue, epo gamma coeffcens ha decease n magnude. Sgnfcan exchange ae exposue o he AUUS acoss mos eun measuemen nevals s obseved n he esuls of sx nduses - ASX 2 Ohe Meals; ASX 5 vesfed Resouces; ASX 15 Meda; ASX 16 Banks; ASX 20 Popey Tuss; and ASX 21 Mscellaneous Sevces. Ou esuls ae mxed n ems of he magnude of he exposue coeffcens. Whee n cases of sgnfcan posve exposue we obseve an ncease n he exposue coeffcen up o he 24-monh neval and hen a seady declne (ASX 2 Ohe Meals and ASX 5 vesfed Resouces), we obseve less pedcable behavou n cases of negave exposue. 8 Table 5 epos he coelaon coeffcens beween he dffeen gamma coeffcens fo he vaous eun hozons. [TABLE 5 ABOUT HERE] We obseve mxed esuls. Fsly, fo he AUJPY exchange ae exposue coeffcens (Panel A) we fnd ha he coelaon beween he one-monh neval and he ohe hozons declnes and becomes negave as he hozon lengh nceases. Howeve, as he eun nevals become close, we noe a senghenng of coelaon. The hghes coelaon coeffcen s epoed fo he 12-monh and 24-monh nevals (0.9337), whle he lowes s ecoded beween 8 A counepa ovelappng daa analyss elave o he AUJPY was also conduced. Ou geneal obsevaon s ha he Ausalan eques make expeences geae long-em exposue o he AUJPY exchange ae faco han does o he AUUS exchange ae faco.
20 20 he 1-monh and 36-monh nevals ( ). These esuls ae no moed fo he AUUS analyss (Panel B). In hs case, even hough he lowes coeffcen s ecoded fo he 1-monh and 48 monh neval ( ), we noe ha he coelaon beween he 1-monh neval and he emanng hozons up o he 36-monh neval nceases. Howeve a decease n he coelaon coeffcen s obseved as he eun nevals become close n lengh. Ths s mos noable n he coelaon of he 48-monh gamma coeffcens. Alhough hee s a geneal decease n he coelaon as he dffeence beween he wo hozons deceases, we obseve he coelaon deceases sgnfcanly beween he especve eun nevals and he 48-monh neval. 3.5 Tess of Zeo-Bea veson of he augmened Fama-Fench model Table 6 epos he esuls of he GMM ess of he zeo-bea veson of he fou-faco model fo he full sample se of he Ausalan eques make usng boh daly and monhly daa. The daly daa analyss s undeaken fo he subpeods 1 May 1996 o 7 May 1997 and 8 May 1997 o 30 Sepembe 1998, as well as fo he full peod 1 May 1996 o 30 Sepembe The esuls ae epoed n Panel A. The monhly analyss s undeaken fo he peod Januay 1991 o Sepembe 1998 and he esuls ae epoed n Panel B. Ou analyss fo boh ses of daa nvolves he Ausalan eques make as a whole, n addon o an nvesgaon of he especve (Resouce and Indusal) secos. [TABLE 6 ABOUT HERE] Fs, n Panel A we fnd ha he GMM sasc s sascally nsgnfcan n all cases so ha he null hypohess canno be ejeced a he en pecen level, wh he lowes p-value (0.1863) epoed fo he full sample peod (Indusal seco) and he hghes p-value (0.9341) obseved fo he subpeod 1996 o 1997 (Resouce seco). Howeve, alhough he model canno be ejeced, we obseve ha he make sk pemum coeffcens ae sascally
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