ESTIMATION OF FOREIGN-EXCHANGE EXPOSURE - AN APPLICATION TO MINING COMPANIES IN AUSTRALIA

Using stock.market data, this paper measures the foreign exchange exposure of mining firms in Australia, traditionally thought to be very sensitive to exchange rate movements. The estimation is conducted at several levels: single equation estimation for individual stocks and for portfolios of stocks from the same industry group, and multivariate regression. The sensitivity of stock returns to exchange rate movements, and proportion of stock returns explained by exchange rate movements, are found to be small. Results from such analysis can be used to assess the effectiveness of existing hedge policies, and the need for, and benefits of, additional hedging.