Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change

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Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change

Author Info

Hau, Harald
Massa, Massimo
Peress, Joël

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Abstract

Do exchange rates react to exogenous capital movements? We explore this issue based on the redefinition of the MSCI international equity indices announced on 10 December 2000 and implemented in two steps on 30 November 2001 and 31 May 2002. The index changes implied major changes in the representation of different countries in the MSCI world index. Our event study shows a strong announcement effect in which countries with a decreasing equity representation vis-a-vis the US depreciated against the dollar. Around the two implementation dates, we find further systematic, but opposite, exchange rate effects, which can be interpreted as a result of excessive speculation on the first implementation date and insufficient speculation on the second date.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4862.

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Date of creation: Jan 2005
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Handle: RePEc:cpr:ceprdp:4862

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-06-14 (All new papers)
NEP-FIN-2005-06-14 (Finance)
NEP-FMK-2005-06-14 (Financial Markets)
NEP-IFN-2005-06-14 (International Finance)
NEP-MON-2005-06-14 (Monetary Economics)

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Other versions:
- Harald Hau & William Killeen & Michael Moore, 2002. "How has the euro changed the foreign exchange market?," Economic Policy, CEPR, CES, MSH, vol. 17(34), pages 149-192, 04. [Downloadable!] (restricted)
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Other versions:
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Other versions:
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Other versions:
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