Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland

47 Pages Posted: 18 Jun 2015

See all articles by ABS Gulati

ABS Gulati

Hanken School of Economics

Johan Knif

Hanken School of Economics

James W. Kolari

Texas A&M University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 17, 2015

Abstract

This study empirically examines how exchange rate shocks affect firms’ competitiveness in the small, export-oriented country of Finland. Specifically, using Sweden as a benchmark and controlling for cross-country sector and industry effects, the Forex competition hypothesis is tested using the impact of exchange rate shocks on Finnish stock returns. The empirical tests reveal statistically significant exchange rate exposure of Finnish stock returns. Comparing pre- versus post-euro periods, equities’ exchange rate exposure is much stronger after the introduction of the euro. Further results indicate that Finnish and Swedish sector and industry stock returns positively co-move. This implies market integration in contradiction to the Forex competition hypothesis. However, for some sectors and industries interaction variables reveal that the co-movement is conditional on exchange rate movements, especially in the post-euro period.

Keywords: exchange rate exposure; stock returns; cross-country industry competition; market integration; pre- and post-euro

JEL Classification: F15, F31, F36, G10, G11, G15

Suggested Citation

Gulati, Anand Bir S and Knif, Johan Anders and Kolari, James W., Exchange Rate Shocks and Firm Competitiveness in a Small, Export-Oriented Economy: The Case of Finland (June 17, 2015). Multinational Finance Journal, Vol. 17, No. 1/2, p. 1-47, 2013, Available at SSRN: https://ssrn.com/abstract=2619668

Anand Bir S Gulati (Contact Author)

Hanken School of Economics ( email )

Handelsesplanaden 2
Helsinki, FI-65101
Finland

Johan Anders Knif

Hanken School of Economics ( email )

P.O. Box 287
FIN-65101 Vasa
Finland
+358 453556008 (Phone)

James W. Kolari

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

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