Global Portfolio Rebalancing Under the Microscope
AbstractThe dramatic increase in gross stock of foreign assets and liability has revived interest in the portfolio balance theory of international investment. Evidence on the validity of this theory has always been scarce and inconclusive. The current paper derives testable empirical implications from microeconomic foundations, which we confront with a new comprehensive data set on the stock allocations of approximately 6,500 international equity funds domiciled in four different currency areas. The disaggregated data structure allows us to examine whether foreign exchange and equity risk measures trigger the predicted rebalancing behavior at the fund and stock level. The data provide strong support for portfolio rebalancing behavior aimed at reducing both exchange rate and equity risk exposure.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6901.
Date of creation: Jul 2008
Date of revision:
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Other versions of this item:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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