Exchange rate fluctuations and international portfolio rebalancing

Jacob Gyntelberg, Mico Loretan, Tientip Subhanij and Eric Chan

Emerging Markets Review, 2014, vol. 18, issue C, 34-44

Abstract: We present empirical evidence for several hypotheses of how exchange rates are affected by investors' cross-border equity portfolio rebalancing decisions. Our results are based on comprehensive, daily-frequency datasets of foreign exchange market transactions and equity market capital flows undertaken by nonresident investors in Thailand in 2005 and 2006. We find that net purchases of Thai equities by nonresident investors systematically lead to an appreciation of the Thai baht. Furthermore, higher returns on Thai equities relative to those on a reference market are associated with subsequent sales of Thai equities by foreign investors as well as a depreciation of the Thai baht, although the latter effect is not statistically significant.

Keywords: Foreign exchange market; Capital flows; Thailand; Equity market; Nonresident investors; Portfolio rebalancing (search for similar items in EconPapers)
JEL-codes: F3 F4 G1 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:18:y:2014:i:c:p:34-44

DOI: 10.1016/j.ememar.2013.11.004

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