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 Centre for Economic Policy Research

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
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP18516 (application/pdf)

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)
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:18516

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP18516

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().