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The euro-dollar exchange rate and equity flows

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  • Heimonen, Kari
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    Abstract

    I examine equity flows between the US and the euro area and their impact on the euro-dollar exchange rate. I explain equity flows by examining the behavior of an international investor who maintains a minimum variance portfolio. An excess of euro area equity returns over US equity returns generates a flow of equity from the euro area to the US. The equity flow, the purchase of US equities by the euro-area residents, causes appreciation (depreciation) of the dollar (euro), while the purchase of euro area equities by US residents causes appreciation (depreciation) of the euro (dollar).

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    Bibliographic Info

    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 18 (2009)
    Issue (Month): 4 (October)
    Pages: 202-209

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    Handle: RePEc:eee:revfin:v:18:y:2009:i:4:p:202-209

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    Web page: http://www.elsevier.com/locate/inca/620170

    Related research

    Keywords: Equity portfolio Euro-dollar Exchange rate Equity flows;

    References

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    Cited by:
    1. Maria Gelman & Axel Jochem & Stefan Reitz & Mark P. Taylor, 2014. "Real Financial Market Exchange Rates and Capital Flows," Kiel Working Papers 1945, Kiel Institute for the World Economy.
    2. Kodongo, Odongo & Ojah, Kalu, 2013. "Real exchange rates, trade balance and capital flows in Africa," Journal of Economics and Business, Elsevier, vol. 66(C), pages 22-46.

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