This paper examines the relationship between exchange rate movement and individual company’s valuation, or exchange rate exposure, in a small open developing economy, specifically South Korea. This paper found that about 20% of the Korean companies stock performance are statistically significantly impacted by the exchange rate functions. This paper also found that there were structural changes in the relationship between the exchange rate return and the stock returns before and after the economic crisis. One of the interesting findings of this paper is that the currency depreciation has significantly different impact on the larger companies and the on the smaller companies. Before the economic crisis, the currency depreciation improved the smallest 50 companies competitiveness in the international markets, thus improving their stock returns. After the crisis, the stock returns of the smallest 50 companies are negatively correlated to the currency depreciation. This is largely due to the short-term foreign debt obligations, recessionary economic conditions. (The rest omitted)
A paper prepared for the conference on 'Korea and the World Economy', 21-22 July 2002, Seoul, South Korea.