Exchange rate exposure in Swedish firms

Abstract: Research questions: Does the exchange rate influence the value of the stocks in a company? Is the model obtained by Doukas, Hall and Lang’s applicable to the Swedish market? Which further factors, except stock value and exchange rate, should be included in the model to give an accurate result? Does the level of foreign involvement matter? Are the results obtained in this thesis going to differ from the results obtained by Doukas, Hall and Lang’s for the Japanese stock market? Purpose: The purpose of this paper is to apply the model in Doukas, Hall and Lang’s paper (2003), in order to analyze the exchange rate exposure of Swedish firms. Further, we will examine if the foreign involvement and the market value of the firm affect the results. Methodology: We started with understanding the model and the theory applied in this thesis. The assumption, that the same macroeconomic factors applied to the Japanese market also was applicable to the Swedish market, was made. Before performing the regression we had to gather a great amount of data, which consisted of 78 stocks and a time period of ten years, 1995 – 2004. The regression was performed using Ordinary least square. In addition, a classification was made in order to evaluate differences between multinationals, high-exporting, low-exporting and domestic firms. Conclusions: We did not find enough evidence to state that Swedish stock values, in general, are sensitive to fluctuations in exchange rate. This conclusion is built upon the result that only six to seven percent of the stocks had a significant coefficient in front of the unexpected exchange rate movements. It is difficult to come to a conclusion regarding the different results obtained for the kronor/dollar exchange rate and the trade-weighted exchange rate, in addition to the different level of exports. The reason for the result could more be a question of randomness, because of the low number of firms with a significant coefficient in front of the unexpected exchange rate movements.