This article examines how to properly specify and test for factors that affect exchange-rate exposure. Starting from theoretical underpinnings and a sample of U.S. manufacturing industries between 1979 and 1995, we find that 4 of 18 industry groups are significantly exposed to exchange-rate movements through the effect of industry competitive structure, export share, and imported input share. On average, a 1% appreciation of the dollar decreases the return of the average industry by 0.13%. Consistent with our model’s predictions, as an industry’s markups fall (rise), its exchange-rate exposure increases (decreases).

Exchange-Rate Hedging: Financial versus Operational Strategies by George Allayannis, Jane Ihrig and James P. Weston. Published in volume 91, issue 2, pages 391-395 of American Economic Review, May 2001