Can portfolio rebalancing explain the dynamics of equity returns, equity flows, and exchange rates?
By: Harald Hau, Hélène Rey.
Contributors: Rey, Hélène.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10476; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10476.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Portfolio management.; Foreign exchange rates.; Foreign exchange futures.
Description: "We explore whether the pattern of international equity returns, equity portfolio flows, and exchange rate returns are consistent with the hypothesis that (unhedged) global investors rebalance their portfolio in order to limit their exchange rate exposure when there are (1) relative equity return and (2) exchange rate shocks.  We also explore whether (3) equity flow shocks influence the exchange rates and relative equity prices.  In the estimation of the VAR system we do not impose any causal ordering upon the primitive shocks, but instead identify the system based on theoretical priors about the contemporaneous conditional correlations between the three variables.  International data for the five largest equity markets are consistent with a theory in which equity returns and portfolio rebalancing are an important source of exchange rate dynamics"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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