Abdullah, Abdullah and Mohammad, Kamarun Nisham Taufil and Khurram, Haris (2019) Does Market Portfolio Index Really Affect Foreign Exchange Exposure? An Empirical Evidence from Malaysian Nonfinancial Firms. Global Business Management Review (GBMR), 11 (2). pp. 1-25. ISSN 2180-2416

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Abstract

Financial theory holds that fluctuations in exchange rate significantly influence open market firms by affecting their cash flows and firm value. Because of high market openness and fluctuations in Malaysian exchange rate, this study first investigates the extent to which 224 sampled firms of Malaysia face foreign exchange risk during the period of 2008 to 2014. It is found that 37% of the firms are exposed to (total) foreign exchange rate exposure during sample period. The dominance of Malaysian firms with positive β1 in each year implies that most of the Malaysian firms in the sample are net-exporters. To test the sensitivity of market portfolio index in exposure model, the Malaysian market index, i.e., FBMEMAS, is added in the exposure model and foreign exchange exposure for Malaysian firms is re-estimated over the sample period. It is obvious from the results that the number of significant coefficients of market index remains surprisingly high throughout the sample period than that of trade- weighted Index (TWI). A 67% of total firms have significant relationship with market index over the sample period as compared to 9% of TWI which shows drastic decreased in foreign exchange exposure by 76%. These results confirm that sometimes market portfolio index as a whole become strongly correlated with exchange rate changes and, in result, it dramatically reduces foreign exchange exposure.

Item Type:	Article
Uncontrolled Keywords:	FX Exposure, Market Portfolio, Residual Exposure
Subjects:	H Social Sciences > HG Finance
Divisions:	Othman Yeop Abdullah Graduate School of Business
Depositing User:	Mrs Nurin Jazlina Hamid
Date Deposited:	28 Nov 2023 11:51
Last Modified:	28 Nov 2023 11:51
URI:	https://repo.uum.edu.my/id/eprint/30048

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