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Understanding Asian equity flows, market returns and exchange rates

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  • Chayawadee Chai-Anant
  • Corinna Ho
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    Abstract

    This paper examines from various angles foreign investors' daily transactions in six emerging Asian equity markets and their relationship with local market returns and exchange rate changes over the period 1999-2006. Confirming much of the literature, we find that equity market returns matter for net equity purchases, and vice versa. In addition, we find that while currency returns tend to show little influence over foreign investors' demand for Asian equities, net equity purchases do have some explanatory power over near-term exchange rate changes. Moreover, we find that foreign investors do quite often move in or out of multiple Asian markets simultaneously - but more so on the way in than on the way out. Nonetheless, during specific events of heightened market volatility, we observe some interesting deviations from the full-sample average relationships.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 245.

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    Length: 49 pages
    Date of creation: Feb 2008
    Date of revision:
    Handle: RePEc:bis:biswps:245

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    Keywords: Asian equity markets; foreign investor; market returns; currency returns; exchange rate;

    This paper has been announced in the following NEP Reports:

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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, Kiel Institute for the World Economy 1945, Kiel Institute for the World Economy.
    2. Nasha Ananchotikul & Chayawadee Chai-anant & Krist Dacharux & Manop Udomkerdmongkol, 2009. "Thailand’s Medium-term Macroeconomic Policies: Major Challenges and Appropriate Responses," Working Papers, Economic Research Department, Bank of Thailand 2009-05, Economic Research Department, Bank of Thailand.
    3. Jotikasthira, Chotibhak & Lundblad, Christian & Ramadorai, Tarun, 2013. "How do foreign investors impact domestic economic activity? Evidence from India and China," Journal of International Money and Finance, Elsevier, Elsevier, vol. 39(C), pages 89-110.
    4. Gyntelberg, Jacob & Loretan, Mico & Subhanij, Tientip & Chan, Eric, 2014. "Exchange rate fluctuations and international portfolio rebalancing," Emerging Markets Review, Elsevier, Elsevier, vol. 18(C), pages 34-44.

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