Assume that your firm is an importer of Mexican chairs denominated in pesos. Your competition is mainly U.S. producers of chairs. You wish to assess the relationship between the percentage change in its stock price (SP_t) and the percentage change in the peso's value relative to the dollar (PESO_t). SP_t is the dependent variable. You apply the regression model to an earlier subperiod and a more recent subperiod. In the recent subperiod, you increased your importing volume. You should expect that the regression coefficient in the PESO_t variable would be ____ in the first subperiod and ____ in the second subperiod.

Question

Quizplus · Accepted Answer

In both subperiods, a depreciation of the peso (a negative change in PESO_t) would make Mexican chairs cheaper, potentially increasing your firm's competitiveness and stock price, leading to a negative relationship in both periods.

Assume That Your Firm Is an Importer of Mexican Chairs