Is There a ‘Mystery of Currency Exposure’? An Empirical Study of A-Share Listed Companies

Given companies’ dynamic responses to expected exchange rate changes, this article improves on current methods of measuring exposure to foreign exchange rate changes by breaking down the spot exchange rate changes into expected changes and unexpected changes. The currency risk exposure coefficients resulting from an empirical analysis of Shanghai Stock Exchange A share listed companies on whose reported performance foreign exchange changes have a direct impact have a high significance level, thus demonstrating a strong correlation between the value changes of A share listed companies and RMB exchange rate fluctuations. Unexpected changes to exchange rates measure the positive impact of RMB real appreciation on company value, whereas expected changes to exchange rates measure the negative impact of RMB real appreciation on that value. Because the influence of the RMB exchange rate on the value of A-share companies is asymmetric and complex, China should further accelerate the development of an optimal exchange rate management system, particularly at the micro-economic level, given the currency risk exposure of listed companies.