Dynamics of the impact of currency fluctuations on Stock Exchange of Thailand:Assessing the pricing of exchange rate risk.

Abstract

This paper examines the exposure of eight Thai industries in Stock Exchange of Thailand to the exchange rate movement for the period February 2005 – December 2019 by using a panel regression analysis on a two-factor APT model. The empirical evidences on cross-sectional analysis reveal that relationship between stock returns and exchange rate movements existed during the periods with an appreciation in Thai Baht. However, no causal relationship between the two during the periods with sideway exchange rate movements. Moreover, the cross-sectional results divulge that investors in the Stock Exchange of Thailand expect a risk premium from the additional exchange rate exposure perceived by them from time to time. This implies insufficient and ineffective hedging on the exchange rate exposure by local companies in the eyes of investors. In a macroeconomic perspective, this can be inferred that Stock Exchange of Thailand and the foreign exchange market is not fully efficient.