The Valuation of Market Risks in Engineering Companies

In this study the analysis of market risks in 137 public engineering companies for a time period from 2010 to 2015 was carried out. Within the framework, two market risks, that were considered to be most relevant for the engineering industry, were analyzed, namely currency risk and oil price risk. To assess market risks, currency risk and oil price risk exposure was estimated. To estimate market risk exposure 2 approaches were used: the one-factor Adler and Duma’s model and the modified Jorian’s model. The weighted average dollar index to the basket of currencies TWEXB is used as an indicator of exchange rate fluctuations, since the analyzed sample consists of companies from various countries of the world. The MSCI index, which reflects the situation on the world market, is used as a market portfolio return indicator. WTI crude oil price change was chosen as oil price change indicator. The analyzed time interval is divided into 3 periods: 2010-2011,2012-2013 and 2014-2015. Weekly data is used in the work. At the second stage, the determinants of market risk exposure are analyzed. As the determinants of exposure, the ratio of diversification degree, quick ratio, the long-term debt to total assets ratio and the size of the company calculated as the logarithm of the company's assets were chosen. The results show that engineering companies are exposed by currency risk and oil price risk. At the same time, it was revealed that diversification reduces the oil price risk exposure in companies that work in the oil sector and the currency risk exposure in all companies of the analyzed sample. There were also identified other indicators that affect the market risk exposure.