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Asymmetric Macroeconomic Exposure Across Bear and Bull Markets

Zetterström, Håkan; Hammarström, Sebastian and Nielsen, Fredrik (2009)
Department of Business Administration
Abstract
This thesis examines whether Swedish quoted firms exhibit any asymmetries in macroeconomic risk exposure towards exchange rate risks and interest rate risks across bear and bull markets. Empirical research suggests that events in the stock market influence the real economy and that stock prices tend to lead real economic activity, and thus could bearish and bullish market give rise to conditional risk exposure. Since Sweden is regarded as a small and open economy, it is expected that Swedish firms should be particularly sensitive
to movements in macroeconomic variables. The differences in the macroeconomic environment across bear and bull markets are expected to induce a firm behaviour aiming at minimizing risk and potential losses. The... (More)
This thesis examines whether Swedish quoted firms exhibit any asymmetries in macroeconomic risk exposure towards exchange rate risks and interest rate risks across bear and bull markets. Empirical research suggests that events in the stock market influence the real economy and that stock prices tend to lead real economic activity, and thus could bearish and bullish market give rise to conditional risk exposure. Since Sweden is regarded as a small and open economy, it is expected that Swedish firms should be particularly sensitive
to movements in macroeconomic variables. The differences in the macroeconomic environment across bear and bull markets are expected to induce a firm behaviour aiming at minimizing risk and potential losses. The investigation stretches from January 2005 through April 2009. The macroeconomic xposure is quantified through multivariate linear regression analysis applying market value as a proxy for the true value of the firm. The asymmetry hypothesis is accommodated in the empirical analysis in the form of a dummy variable regression, where the time series sample is partitioned according to the sign of the long term trend in the market. The cross-section is divided along industry lines to explore differences in exposure behaviour depending on characteristics of firm operations.
The principal conclusions of this thesis are that the major factors affecting Swedish firms during the investigated period are the domestic short term interest rate and the bilateral
exchange rates between the Swedish krona and the Japanese yen, the U.S. dollar and the Euro. Identified asymmetries across bear and bull markets are most prominent in these variables. The direction and magnitude of obtained risk exposures in each market state deviates from the expected, and no clear economic rationale is identified to explain the
behaviour. Further, similar risk exposures are identified across industries. This thesis does not supply conclusive evidence, but rather a suggestion that there is a potential asymmetry
regarding risk exposure across bear and bull markets. (Less)
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author
Zetterström, Håkan; Hammarström, Sebastian and Nielsen, Fredrik
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Macroeconomic exposure; risk; asymmetric exposure; exchange rate; interest rate; market state; bear; bull, Management of enterprises, Företagsledning, management
language
Swedish
id
1437655
date added to LUP
2009-06-03 00:00:00
date last changed
2012-04-02 17:47:37
@misc{1437655,
  abstract     = {This thesis examines whether Swedish quoted firms exhibit any asymmetries in macroeconomic risk exposure towards exchange rate risks and interest rate risks across bear and bull markets. Empirical research suggests that events in the stock market influence the real economy and that stock prices tend to lead real economic activity, and thus could bearish and bullish market give rise to conditional risk exposure. Since Sweden is regarded as a small and open economy, it is expected that Swedish firms should be particularly sensitive
to movements in macroeconomic variables. The differences in the macroeconomic environment across bear and bull markets are expected to induce a firm behaviour aiming at minimizing risk and potential losses. The investigation stretches from January 2005 through April 2009. The macroeconomic xposure is quantified through multivariate linear regression analysis applying market value as a proxy for the true value of the firm. The asymmetry hypothesis is accommodated in the empirical analysis in the form of a dummy variable regression, where the time series sample is partitioned according to the sign of the long term trend in the market. The cross-section is divided along industry lines to explore differences in exposure behaviour depending on characteristics of firm operations.
The principal conclusions of this thesis are that the major factors affecting Swedish firms during the investigated period are the domestic short term interest rate and the bilateral
exchange rates between the Swedish krona and the Japanese yen, the U.S. dollar and the Euro. Identified asymmetries across bear and bull markets are most prominent in these variables. The direction and magnitude of obtained risk exposures in each market state deviates from the expected, and no clear economic rationale is identified to explain the
behaviour. Further, similar risk exposures are identified across industries. This thesis does not supply conclusive evidence, but rather a suggestion that there is a potential asymmetry
regarding risk exposure across bear and bull markets.},
  author       = {Zetterström, Håkan and Hammarström, Sebastian and Nielsen, Fredrik},
  keyword      = {Macroeconomic exposure; risk; asymmetric exposure; exchange rate; interest rate; market state; bear; bull,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Asymmetric Macroeconomic Exposure Across Bear and Bull Markets},
  year         = {2009},
}