We examine the sensitivity of 31 UK non-financial industries to exchange and interest rate exposure from 1990 to 2006 using first-order autoregressive exponential GARCH-in-mean (EGARCH-M) model. We find that the stock returns of UK industries are more affected by long-term interest rate risk...

Exchange rate and interest rate risk have been documented as the most managed financial risks by most UK non-financial firms and industries. This is probably because of the severe adverse effects that contrary movements in these financial risks can have on the value of the firm or industry....