EconPapers    
Economics at your fingertips  
 

Portfolio rebalancing in times of stress

Andreas Fischer (), Rafael Greminger and Christian Grisse ()

No 2017-11, Working Papers from Swiss National Bank

Abstract: This paper investigates time variation in the dynamics of international portfolio equity flows. We extend the empirical model of Hau and Rey (2004) by embedding a two-state Markov regime-switching model into the structural VAR. The model is estimated using monthly data for the period 1995-2015 on equity returns, exchange rate returns and equity flows between the United States and advanced and emerging economies. We find that the data are consistent with portfolio rebalancing. The estimated states match periods of low and high financial stress. Our main result is that for equity flows between the United States and emerging markets, the rebalancing dynamics differ between high and low episodes of financial stress. A switch from the low to the high stress regime is associated with capital outflows from emerging markets. Once in the high stress regime, the response of capital flows to exchange rate shocks is smaller than in normal (low stress) periods.

Keywords: Portfolio rebalancing; equity flows; exchange rates; financial stress; structural VAR; sign restrictions; regime switching (search for similar items in EconPapers)
JEL-codes: F30 G11 G15 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.snb.ch/n/mmr/reference/working_paper_2 ... _paper_2017_11.n.pdf (application/pdf)

Related works:
Working Paper: Portfolio Rebalancing in Times of Stress (2017) Downloads
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:snb:snbwpa:2017-11

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank Contact information at EDIRC.
Bibliographic data for series maintained by Enzo Rossi ().

 
Page updated 2019-12-03
Handle: RePEc:snb:snbwpa:2017-11