Global Portfolio Rebalancing and Exchange Rates

Nelson Camanho, Harald Hau and Helene Rey

No 24320, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine international equity allocations at the fund level and show how excess foreign returns influence portfolio rebalancing, capital flows and currencies. Our equilibrium model of incomplete FX risk trading where exchange rate risk partially segments international equity markets is consistent with the observed dynamics of equity returns, exchange rates, and fund-level capital flows. We document that rebalancing is more intense under higher FX volatility and find heterogeneous rebalancing behavior across different fund characteristics. A granular instrumental variable (GIV) approach identifies a positive currency supply elasticity.

JEL-codes: F3 F31 F32 F62 G15 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-ifn and nep-opm
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Citations: View citations in EconPapers (17)

Published as Nelson Camanho & Harald Hau & Hélène Rey & Ralph Koijen, 2022. "Global Portfolio Rebalancing and Exchange Rates," The Review of Financial Studies, vol 35(11), pages 5228-5274.

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Related works:
Journal Article: Global Portfolio Rebalancing and Exchange Rates (2022)
Working Paper: Global Portfolio Rebalancing and Exchange Rates (2020)
Working Paper: Global Portfolio Rebalancing and Exchange Rates (2018)
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