Can Time-Varying Currency Risk Hedging Explain Exchange Rates?

Bräuer, Leonie and Harald Hau
Authors registered in the RePEc Author Service: Leonie Bräuer

No 18516, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The rise in net international bond positions of non-US investors over the last decade can account for the long-run surge in net dollar hedging positions in FX derivatives. The latter influence spot exchange rates through CIP arbitrage. Using intermediaries’ capital ratio as a supply shifter, we identify a price inelastic derivative demand by institutional investors and document that changes in their net hedging positions can explain approximately 30% of all monthly variation in the seven most important dollar exchange rates from 2012 to 2022.

JEL-codes: E44 F31 F32 G11 G15 G23 (search for similar items in EconPapers)
Date: 2023-10
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Related works:
Working Paper: Can Time-Varying Currency Risk Hedging Explain Exchange Rates? (2022)
Working Paper: Can Time-Varying Currency Risk Hedging Explain Exchange Rates? (2022)
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