Asymmetric exchange rate exposure: theory and evidence

This paper tests the hypothesis that exchange rate exposure is asymmetric over appreciation–depreciation cycles. More specifically, it investigates whether returns on nine sector indexes across four major countries are asymmetrically affected by exchange rate movements. The results show that in several instances exposure is asymmetric. Asymmetries are found to be more pronounced in the financial and non-cyclical sectors. Possible theoretical explanations are provided regarding the particular type of exposure found across sectors and countries.