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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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Bibliographic 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
Date of revision:
Handle: RePEc:bis:biswps:287

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

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  1. Cheung, Yin-Wong & Chinn, Menzie David & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Department of Economics, Working Paper Series qt12z9x4c5, Department of Economics, UC Santa Cruz.
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Cited by:
  1. McCauley, Robert N., 2013. "Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets," ADBI Working Papers 405, Asian Development Bank Institute.
  2. Dagfinn Rime & Hans Jørgen Tranvåg, 2012. "The Flows of the Pacific: Asian foreign exchange markets through tranquility and turbulence," Working Paper 2012/01, Norges Bank.
  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, vol. 39(C), pages 89-110.

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