Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change

Harald Hau (), Massimo Massa and Joel Peress ()

No 4862, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Do exchange rates react to exogenous capital movements? We explore this issue based on the redefinition of the MSCI international equity indices announced on 10 December 2000 and implemented in two steps on 30 November 2001 and 31 May 2002. The index changes implied major changes in the representation of different countries in the MSCI world index. Our event study shows a strong announcement effect in which countries with a decreasing equity representation vis-a-vis the US depreciated against the dollar. Around the two implementation dates, we find further systematic, but opposite, exchange rate effects, which can be interpreted as a result of excessive speculation on the first implementation date and insufficient speculation on the second date.

Keywords: event study; exchange rates; Global Equity Index Funds; Limits of Arbitrage (search for similar items in EconPapers)
JEL-codes: F31 G12 G24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ifn and nep-mon
Date: 2005-01
View list of references

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP4862.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:4862

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP4862.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().