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International portfolio rebalancing and exchange rate fluctuations in Thailand

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Author Info
Jacob Gyntelberg
Mico Loretan
Tientip Subhanij
Eric Chan
Abstract

We present empirical evidence that the Thai exchange rate is driven in part by international investors' cross-border portfolio rebalancing decisions. Our results are based on two comprehensive, daily-frequency datasets of foreign exchange and equity market capital flows undertaken by nonresident investors in Thailand in 2005 and 2006. We find that net purchases of Thai equities by nonresident investors lead to an appreciation of the Thai baht. In addition, higher returns in the Thai equity market relative to a reference stock market are associated both with net sales of Thai equities by these investors and with a depreciation of the Thai baht. Foreign investors do not appear to hedge the foreign exchange risk related to their equity market positions. Despite this, we find that exchange rate movements were not key drivers of nonresident investors' equity market investment choices in our sample period.

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Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number 287.

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Length: 19 pages
Date of creation: Aug 2009
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Handle: RePEc:bis:biswps:287

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Related research
Keywords: foreign exchange market; capital flows; Thailand; equity market; nonresident investors; portfolio rebalancing;

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This page was last updated on 2009-12-21.

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