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The euro-dollar exchange rate and equity flows

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Author Info
Heimonen, Kari
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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File URL: http://www.sciencedirect.com/science/article/B6W61-4VGPWR0-1/2/bed446112db1d7dec377a51d2e15451f
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Publisher 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

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

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This page was last updated on 2009-12-3.


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