We report evidence of a time-varying link between returns on national stock market indexes and exchange rate returns (exchange rate exposure). We use this evidence to analyze the sources of changes over time in exchange rate exposure. Using monthly data for 14 industrialized countries for the period 1975-2006, we report evidence of a cointegration relation between exchange rate exposure and the industry composition of a country’s imports, and weaker evidence of a cointegration relation between exchange rate exposure and openness to trade.
- Sources of stock market risk influencing the pricing
- Variance in Stock Market Participation and Asset Allocation