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Working Paper
The effect of markups on the exchange rate exposure of stock returns
This paper examines how to properly specify and test for factors that affect the exchange-rate exposure of stock returns. We develop a theoretical model, which explicitly identifies three channels of exposure. An industry's exposure increases (1) by greater competitiveness in the market where its final output is sold, (2) the interaction of greater competitiveness in its export market and a larger share of exports in production and, (3) the interaction of less competitiveness in its imported input market and the smaller the share of imports in production. Using a sample of 82 U.S. ...