Can event study methods solve the currency exposure puzzle?

Prior empirical evidence on the stock price response of exposed firms to contemporaneous changes in exchange rates is weak. This paper avoids many problems encountered in previous work by using event-study methods to examine the daily stock price reactions of exposed U.S. multinationals to large, bilateral declines in the Mexican peso and Thai baht. We find a contemporaneous price response but interpret the magnitude of the response to say that the currency puzzle is not primarily due to methodological weaknesses in prior studies. Several findings suggest that effective financial and operational hedging may be the chief reason exchange rate changes do not affect stock prices more dramatically.