Exchange Rate Shocks and Firm Competitiveness in Small, Export-Oriented Economies: The Case of Finland

June 2013 | Kolari, James W.

This study empirically examines how exchange rates affect firms’ stock returns in small, export-oriented countries that compete closely with one another. Specifically, controlling for cross-country sector and industry effects between Finland and Sweden, we test the impact of exchange rate shocks on Finnish stock returns. In general, empirical tests reveal statistically significant exchange rate exposure of Finnish stock prices. Comparing pre- versus post-euro periods, equities’ exchange rate exposure is much stronger after the introduction of the euro. Further results show that Finnish and Swedish sector and industry stock values positively co-move with another, which implies market integration as opposed to competitiveness. However, interaction variables reveal that their co-movement is conditional on exchange rate movements for some sectors and industries, especially in the post-euro period. We conclude that countries with small, open economies can be prone to exchange rate movements that (dis)advantage some firms relative to competing firms in other countries.



  • Anand B S Gulati
  • Johan Knif
  • James W. Kolari


Multinational Finance Journal