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Commodity currencies and equity flows

  • Chaban, Maxym

This paper analyzes the relationship among the prices of natural resources, returns on equity and nominal exchange rates of the developed countries where primary commodities are an important share of exports: Australia, Canada and New Zealand. It is found that the portfolio-rebalancing motive of Hau and Rey [Hau, H., Rey, H., 2006. Exchange rates, equity prices, and capital flows. Review of Financial Studies 19 (1), 273-317.] is weaker for these countries. One possible explanation of this finding is that commodity prices due to their flexibility play a special role in the transmission of shocks by linking equity markets across countries and reducing the need for portfolio rebalancing.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-4T8JX88-1/2/e499df44ecdfefa30a8d5a05e069db4b
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 5 (September)
Pages: 836-852

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:5:p:836-852
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Cass, David & Pavlova, Anna, 2004. "On trees and logs," Journal of Economic Theory, Elsevier, vol. 116(1), pages 41-83, May.
  2. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
  3. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
  4. Neary, Peter, 1988. "Determinants of the Equilibrium Real Exchange Rate," American Economic Review, American Economic Association, vol. 78(1), pages 210-15, March.
  5. 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.
  6. Pavlova, Anna & Rigobon, Roberto, 2004. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, vol. 75(1), pages 239-268, October.
  8. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
  9. Amano, Robert A. & van Norden, Simon, 1995. "Terms of trade and real exchange rates: the Canadian evidence," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 83-104, February.
  10. Zapatero, Fernando, 1995. "Equilibrium asset prices and exchange rates," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 787-811, May.
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