Private Information, Capital Flows, and Exchange Rates

Jacob Gyntelberg, Subhanij Tientip and Mico Loretan

No 2012/213, IMF Working Papers from International Monetary Fund

Abstract: We demonstrate empirically that not all capital flows influence exchange rates equally: Capital flows induced by foreign investors’ stock market transactions have both an economically significant and a permanent impact on exchange rates, whereas capital flows induced by foreign investors’ transactions in government bond markets do not. We relate these differences in the price impact of capital flows to differences in the amounts of private information conveyed by these flows. Our empirical findings are based on novel, daily-frequency datasets on prices and quantities of all transactions of foreign investors in the stock, bond, and onshore FX markets of Thailand.

Keywords: WP; FX order flow; FX transaction; FX dealer; Thai baht; bond order flow; bond order flow series; component FX order flow; customer order flow; FX order flow shock; FX risk; FX swap order flow; swap transaction; Order flow; private information; exchange rate models; market microstructure; exchange rate fluctuation; responses to FX order flow shock; FX order flow regression; flow series; Citibank customer order flow; Stock markets; Currency markets; Securities markets; Exchange rates; Global (search for similar items in EconPapers)
Pages: 28
Date: 2012-08-01
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Private information, capital flows, and exchange rates (2018)
Working Paper: Private information, capital flows, and exchange rates (2015)
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