The Impact of Exchange Rate Risk on the Share Returns of Oil&Gas Companies of the World

Abstract The following work is devoted to studying the impact of exchange rate risks on the efficiency of oil&gas companies of the world. The sample is comprised of 260 most capitalized companies worldwide. Specifically, under the impact of exchange rate risks on the efficiency of firms, the influence of changing FX returns on companies’ share returns is considered. As a foreign exchange rate proxy a USD trade weighted index (Major Currencies Index) is employed. The data on share returns, FX returns and the market portfolio returns are taken within the period from 1980 to 2016, which allows tracing a long time history of the impact of FX returns dynamics on the companies’ share returns dynamics. In fact, the calculations are conducted using the data frame from 1992 to 2016, since there used to be no appropriate market portfolio before that time as it turned out to be. Apart from the calculations of the foreign exchange risk exposures for the sample of top market oil&gas companies of the world, a panel analysis of FX exposure determinants is conducted in the period of 2001 – 2015. This article extends the existing set of literature in exploring this issue on a world industry, global oil&gas sector. In all other works, to the author’s extent of knowledge, there are investigations done on either “intra-market” industry comparisons or “entire market-to-market” comparisons. The relevance and special interest are dictated by the global oil crisis started in 2014 as well as FX rates increasing volatility, which both together have led world oil&gas companies to significant unpredicted losses and gains. The results obtained are practically important due to two facts, at least. Firstly, all companies are still actively traded, and secondly, the estimates represent the measure of FX influence on share returns, as long as the factors that drive this influence are revealed.