7.3 GDP The GDP is expected to be positively related to stock returns meaning that faster economic..

7.3 GDP The GDP is expected to be positively related to stock returns meaning that faster economic growth presents higher stock prices (and vice versa). As we can observe on graphs of GDP for France, Germany and Sweden, the GDP have been increasing from 2000 to 2007. However, our results did not indicate any significant relationship between GDP and stock returns for the selected companies. One explanation could be that the effects of GDP are already incorporated in the movements of the stock market index factor. In the automobile industry section, we illustrate how the selected companies are exporting their products abroad and have plants in different countries. Thus, these companies have a big fraction of exports but also some importing activities. This might lead to the fact that their stock returns may not only be sensitive to the GDP of the home country, but also to the GDP of the importing (and exporting) countries. Therefore, by including only the GDP of the home country, we were not able to capture the impact of GDP. 50 7.4 Stock market Index The stock market index is expected to be positively related to stock returns, thus a rise in stock market index should also increase a given company’ stock return (and vice versa). Previously, we observed that there is a linear dependence between stock return and stock market index for all the selected companies except Audi. Based on the regression analysis, the stock market movements explain the movements of the stock returns of five out of the six companies (Volvo, Saab, Peugeot, Renault and BMW). The beta values for all the companies are positive, which is in accordance with the literature stating a positive linkage between the two variables. Among all the explanatory variables, the stock market index factor was the only one that captures the movements of 84% of the selected companies at the significance level of 5%. We think that this can be explained by the fact that the stock market index is a factor that most of the time captures the changes in most of the macroeconomic variables. 51 In this section, we embody the summary of empirical findings. The conclusion and recommendation are provided and connected to our research question and existing theory. Also it brings identified areas for further research. 8. Conclusion and Recommendations 8.1 Conclusions and Recommendations This research is investigating if movements in exchange rates affect stock market returns of six selected European automobile companies by applying the APT model. It also studies if there is any difference on how exchange rate movements impact Swedish automobile companies compared to French and German companies. A multiple regression model is used to incorporate other significant macroeconomic variables such as GDP, market index and oil price. The data collected indicates that the SEK/USD and the Euro/USD exchange rates were fluctuating greatly compared to the SEK/Euro exchange rate. However, results from the regression analysis revealed that fluctuations in all the three exchange rates were not affecting the stock market returns of five out of the six investigated companies. For the Swedish companies, Saab and Volvo, we analysed the SEK/Euro and SEK/USD exchange rates and found that the linkage to their stock returns was not statistically significant. The same outcomes were observed for the French companies, Renault and Peugeot; and one of the German companies, Audi when investigating the impact of the Euro/USD exchange rate movements on the companies’ stock returns. In our theoretical framework, we mentioned some reasons explaining why results from earlier studies showed no significant linkage between stock market returns and exchange rates. One of these reasons was that hedging strategies applied by the companies might be successful leading to the difficulty of capturing exchange rate risks faced by these companies. We think that this might have been the case in our outcomes. Since the results did not reveal that these companies’ stock returns were affected by the volatility of exchange rates, we believe it will not be necessary to provide recommendations on their hedging strategies. In contrast to other companies, BMW stock returns were significantly affected by the changes in Euro/USD exchange rate. This might be an indication that BMW was not 52 applying the appropriate hedging strategies to mitigate currency risk in the period investigated. For the future, our recommendations for BMW would be to improve its risk management to mitigate exchange rate risk. By linking to the prior assumption, we asserted that the volatility of exchange rate does exert additional risk for the Swedish automobile companies compared to French and German companies. However, our findings show that there is no significant difference between the two. When analyzing the annual report of Swedish companies we found that they were using almost identical financial derivates to hedge currency risk as the one used by French and German companies. Even though Swedish companies, being outside the euro zone, might face additional currency risks compared to French and German companies, they seem to be able to circumvent these risks so effectively that their impact is not significant. Hence, Swedish companies, like French and most German automobile MNCs, seem to use the same type of financial instruments. In the regression analysis, this paper further included three more important macroeconomic variables like: GDP, market index and oil price. GDP and oil price factors did not show any significant relationship with stock returns of all six companies. However, the market index explanatory variable showed a significant impact on stock return to all six companies. 8.2 Further Research As mentioned in our earlier parts, most of the previous studies about the linkage between exchange rate and stock market return were done on the USA and Asian firms; and less were done on the European firms. We think that further research on European companies from different industry should be done to give a more complete picture. This might help executives to see the impact of exchange rate fluctuations on firm’s value and thereby provide some suggestions about how European firms from different industries could use financial derivatives to hedge exchange rate exposure if necessary.