10.5 Discussion and Recommendation
business. These large firms may structure their financial and operational hedging strategies to reduce the aggregate foreign exchange rate exposure (Koutmos and Martin2003; Lin2011).
Our findings on the contemporaneous impact of studied exchange rate move- ments to the share returns of the sampled firms imply some degree of market efficiency in both Malaysian and Singaporean markets. Our results have shown that large firms are also exposed to other currencies instead of USD. Thus, thefirm’s understanding of the effect of other currencies to their share returns is also important to fully manage their exchange rate exposure through hedging strategies.
10.5.2 Recommendation
This study investigated exchange rate exposure of large firms in Malaysia and Singapore only. Future research should include more firms and countries with different levels of market capitalisation to better understand the stylised effect of exchange rate exposure in thefirm-level analysis. Future research should also look into the possibility that the relationship between exchange rate movements and share returns is asymmetric and has a lagged effect due to the possibility of thefirms to adopt hedging strategies to mitigate the aggregate effect of exchange rate exposure. In practical implications, the significant effect of different bilateral exchange rates implies the importance of introducing multiple exchange rate rates in the exposure model (e.g., Bacha et al.2013; Bartram2004; Bartram and Bodnar 2007; Parsley and Popper 2006). Hence, the firm’s financial manager should constantly monitor the effect of multiple currencies on their share returns to mitigate their exchange rate exposure through the hedging strategies.
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Shock and Volatility Transmission Between Oil Prices and Stock Returns:
Case of Oil-Importing and Oil-Exporting Countries
Nurul Nazurah Atu, Imbarine Bujang and Norlida Jaafar
Abstract This study examines shock and volatility transmission between oil prices and stock returns in oil-importing and oil-exporting countries, including the USA, China, Saudi Arabia, Malaysia and a Brent oil market. We used daily data starting from January 1, 2004, until December 31, 2014. By using a bivariate vector autoregressive–generalised autoregressive conditional heteroscedasticity (VAR-GARCH) model, the empirical results suggest that there is a unidirectional shock transmission from oil to stock and bidirectional volatility transmission between oil prices and stock returns in the Standard and Poor 500 (S&P 500).
Additionally, bidirectional shock and volatility transmission was discovered between oil prices and stock returns in the Tadawul All Share Index (TASI) and FTSE Bursa Malaysia KLCI (FBMKLCI). Nevertheless, there is no evidence found in the Shanghai Stock Exchange (SSE) Composite. The empirical results also suggest that the transmissions appear more often from oil to stock markets.
Keywords Oil prices
Stock returnsVAR-GARCH modelN.N. Atu (&)I. Bujang
Faculty of Business Management, Universiti Teknologi MARA, Kota Kinabalu, Sabah, Malaysia
e-mail: [email protected] I. Bujang
e-mail: [email protected] N. Jaafar
Faculty of Business Management, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia
e-mail: [email protected]
©Springer Nature Singapore Pte Ltd. 2018
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