Foreign exchange rate exposure of an emerging market: the case of Indonesia
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The paper examines the exchange rate exposure of the Indonesian national market, the Indonesia Stock Exchange, for the 1988-2009 period using an EGARCH(1, 1) model. The evidence indicates negative exposure of the Indonesian market to variations in the rupiah-dollar exchange rate. Moreover, applying a rolling regression technique, the exposure is found to be more negative in recent years. Thus, the rupiah-dollar depreciation tends to have an adverse impact on the Indonesian market. These results seem to be robust across specifications of the mean equation. Finally, our exploratory exercises indicate the potential importance of current account and financial variables particularly current account balance, financial account balance, financial development, and financial openness in explaining changing exchange rate exposure. However, their relations with the exposure seem intriguing and may be more complex than we thought.
Exchange rate exposure , Indonesia Stock Exchange , Rolling regressions , EGARCH
Ibrahim, Mansor H. and Abdul Hamid, Baharom. (2011). Foreign exchange rate exposure of an emerging market: the case of Indonesia. Taylor Business Review, 1 (1).