An international market model and exchange rate risk: Australian evidence

The purpose of this paper is to investigate the sensitivity of Australian s tock returns to US market returns, via an international market model. Our s tudy investigates the relative sensitivity to (1) the US return denominated in Australian dollars and (2) the US market return decomposed into its two component factors (the US market return expressed in US dollars and the AU DUSD exchange rate return). Our results suggest that Australian industries are differentially sensitive to changes in the US market and to exchange ra te movements.