EXCHANGE-RATE EXPOSURE AND INDUSTRY CHARACTERISTICS - EVIDENCE FROM CANADA, JAPAN, AND THE USA

This paper examines industry-level exchange rate exposures for Canada, Japan, and the USA. Measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns, some industries in all three countries display significant exposures. Moreover, for each country, the exchange rate is important for explaining industry returns at the economy-wide level. To explore whether exchange rate exposures are systematically linked to the activities of the industries, we model exposure as a function of industry characteristics. For all three countries, the relation between exposure and industry characteristics is broadly consistent with economic theory.