Real financial market exchange rates and capital flows

Maria Gelman, Axel Jochem, Stefan Reitz and Mark Taylor

Journal of International Money and Finance, 2015, vol. 54, issue C, 50-69

Abstract: Foreign exchange rates, asset prices and capital movements are expected to be closely related to each other as international capital markets become more and more integrated. This paper provides new empirical evidence from an index of exchange-rate adjusted cross-country asset price ratios, which may be interpreted as a real effective financial exchange rate. The integrated stock-flow approach reveals that a country's real effective financial exchange rate is cointegrated with international investors' net foreign holdings of its assets. The associated error correction equations have useful interpretations against the backdrop of uncovered return parity and investor portfolio rebalancing behavior.

Keywords: Real effective exchange rate; Capital flows; Financial markets (search for similar items in EconPapers)
JEL-codes: E58 F31 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Real financial market exchange rates and capital flows (2014)
Working Paper: Real financial market exchange rates and capital flows (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:54:y:2015:i:c:p:50-69

DOI: 10.1016/j.jimonfin.2015.02.004

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