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Exchange Rate Fluctuations and International Portfolio Rebalancing in Thailand

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Author Info

  • Jacob Gyntelberg
  • Subhanij Tientip
  • Mico Loretan

Abstract

We present empirical evidence that the Thai baht’s value is driven in part by investors’ cross-border equity portfolio rebalancing decisions. Our results are based on comprehensive datasets of FX and stock market transactions undertaken by nonresident investors in Thailand in 2005 and 2006. Higher returns in the stock market relative to a reference stock market are associated with net sales of equities by these investors and a depreciation of the Thai baht. Net purchases of Thai equities lead to an appreciation of the Thai baht. Foreign investors do not appear to hedge the foreign exchange risk related to their stock market positions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/214.

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Length: 19
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/214

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Related research

Keywords: Capital flows; Exchange rates; Stock markets; Exchange rate appreciation; equity market; stock market; exchange rate; foreign exchange; financial institutions; foreign exchange market; bonds; hedge; stock exchange; hedging; financial assets; asset markets; exchange rate fluctuations; international capital; currency risk; bond; exchange risk; equity markets; foreign exchange risk; financial system; current accounts; financial markets; exchange markets; stock prices; domestic financial system; home currency; spot exchange rate; flexible exchange rates; international finance; portfolio investment; domestic financial institutions; reserve requirement; domestic-currency; stock market transactions; international financial markets; government bond; exchange rate movements; bond markets; money market; bond securities; government bond markets; exchange rate determination; foreign exchange markets; dollar exchange rate; financial market; money markets;

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  1. Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.
  2. Ferreira Filipe, Sara, 2012. "Equity order flow and exchange rate dynamics," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 359-381.
  3. Harald Hau & Hélène Rey, 2004. "Can Portfolio Rebalancing Explain the Dynamics of Equity Returns, Equity Flows, and Exchange Rates?," American Economic Review, American Economic Association, vol. 94(2), pages 126-133, May.
  4. Abhakorn, Pongrapeeporn & Tantisantiwong, Nongnuch, 2012. "A reexamination of capital controls’ effectiveness: Recent experience of Thailand," Journal of Asian Economics, Elsevier, vol. 23(1), pages 26-38.
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