Journal of Risk

Determinants of foreign exchange risk: some further evidence

Luke Lin and Wen-Yuan Lin

  • This study attempts to confirm foreign exchange risk determinant orientation.
  • We contend that the problem is caused by changes in the operating and investment behavior of companies facing high and low foreign exchange exposures.
  • We employed the quantile regression model to compare determinant influence orientation under high and low foreign exchange risk.
  • The empirical results confirm that the key to explaining differences in influence orientation is the degree of foreign exchange risk.

We employ the quantile regression model to examine Taiwanese companies and consider factors that researchers have identified may influence orientation divergences for robustness testing. The results indicate that the export ratio (positive influence), quick ratio (negative influence) and debt-to-equity ratio (positive influence) variables show similar influence orientations for both high and low quantile results. Further, the firm-size and book-to-market ratio variables have a positive influence in the low quantile but a negative influence in the high quantile. This pattern holds when accounting for exposure-specific characteristics such as original/absolute, positive/negative or different industry risk.

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