Faculty & Research
Operational Hedging and Exchange Rate Risk: A Cross-sectional Examination of Canada’s Hotel Industry
Vol 9 No 15
By: Charles Chang Ph.D. and Liya Ma
Executive Summary:
Rather than engage in expensive and complicated currency hedging, hotels operating in an international environment can gain similar benefits from their normal operations, including revenue management. An analysis of 1,032 Canadian hotels over a period of over two and one-half years shows that due to exhange rate interactions, ADR, occupancy, and RevPAR increase in weak currency environments, while they decrease in strong environments. As a local currency fluctuates in relation to the dollar, euro, or yen, changes in ADR, occupancy, and (thus) RevPAR offset losses from currency translation in weak environments and modify gains when the currency is strong. When a local currency loses value against the dollar, for instance, travelers consider hotels priced in that currency to be less expensive, even though the nominal price hasn’t changed. Additional travelers who are attracted by "bargain" prices increase occupancy and cause the hotel’s revenue management system to recommend higher rates. Even with higher rates, the hotel’s rates might still be favorable, and the hotel’s revenue per available room would be augmented by both higher room rates and higher occupancy. The implication is that multinational hotel chains have significantly less exposure to foreign exchange risk than implied by traditional hedging practices.
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- Operational Hedging and Exchange Rate Risk: A Cross-sectional Examination of Canada’s Hotel Industry By: Charles Chang Ph.D. and Liya Ma
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Other Reports or Articles You May Find of Interest
- Hotel Revenue Management in an Economic Downturn: Results of an International Study, by Sheryl E. Kimes
- Private Equity Investment in Public Hotel Companies: Recent Past, Long-term Future, by John B. Corgel
- Setting Room Rates on Priceline: How to Optimize Expected Hotel Revenue, by Chris Anderson
About Charles Chang Ph.D.
Charles Chang, Ph.D., joined the Hotel School at Cornell University in 2003 upon receiving a Ph.D. in finance from the Haas Business School at the University of California, Berkeley. Prior to that, he was a decorated scholar at the Wharton School of Business, University of Pennsylvania. He is actively engaged in research in the fields of investments, institutional trading, and behavioral finance with a focus on emerging markets. He has presented findings at some of the most prestigious conferences in the field and has published work in top journals such as the Journal of Financial Economics, the Journal of Corporate Finance, and the Journal of International Money and Finance. Since 2003, he has acted as managing partner for PM Legacy Capital, a privately held investment consulting entity that has managed funds and provided investment consulting services for clients in the U.S. and abroad.
