The paper uses the model-free test, proposed by Hong et al. (2004), and threshold models to investigate whether asymmetric exchange rate exposure is detected on industry index returns in Japan. Asymmetric exposures are found to be more pronounced in the Pharmaceutical, Real State, and Air Transportation. Asymmetries may result from industry characteristics, such as pricing-to-market with market share objective, hysteresis, and asymmetric hedging. Furthermore, we find that the second-moment exposure is an important independent variable which can increase the ability of explanation in the threshold models.
