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The euro-dollar exchange rate and equity flows

  • Heimonen, Kari
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    I examine equity flows between the US and the euro area and their impact on the euro-dollar exchange rate. I explain equity flows by examining the behavior of an international investor who maintains a minimum variance portfolio. An excess of euro area equity returns over US equity returns generates a flow of equity from the euro area to the US. The equity flow, the purchase of US equities by the euro-area residents, causes appreciation (depreciation) of the dollar (euro), while the purchase of euro area equities by US residents causes appreciation (depreciation) of the euro (dollar).

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    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 18 (2009)
    Issue (Month): 4 (October)
    Pages: 202-209

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    Handle: RePEc:eee:revfin:v:18:y:2009:i:4:p:202-209
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