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Equity flows, stock returns and exchange rates


  • Angelos Kanas
  • Sotirios Karkalakos


We explore the effects of equity flows between U.S. and U.K. investors upon equity and exchange rate returns within a unified empirical framework on the basis of a trivariate vector autoregressive system that incorporates mean and volatility spillovers and allows for dynamic conditional correlations. Our findings are as follows: First, we reveal strong evidence of volatility spillovers across equity returns, exchange rate returns, and equity flows. Second, we find strong evidence that U.K. investors rebalance their portfolios by engaging in a positive feedback trading known in the literature as “trend chasing.” Third, we document strong dynamic effects from net flows to equity returns, illustrating a trading rule that portfolios are dynamically adjusted over a short‐run horizon influencing changes in stock returns. Last, correlation uncertainty appears to be reduced from the start of the 1990s onwards.

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  • Angelos Kanas & Sotirios Karkalakos, 2017. "Equity flows, stock returns and exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 22(2), pages 159-168, April.
  • Handle: RePEc:wly:ijfiec:v:22:y:2017:i:2:p:159-168

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    Cited by:

    1. Muhammad Kamran Khan & Jian-Zhou Teng & Javed Pervaiz & Sunil Kumar Chaudhary, 2017. "Nexuses between Economic Factors and Stock Returns in China," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(9), pages 182-191, September.
    2. Md. Qamruzzaman & Ananda Bardhan & Summatun Nasya, 2020. "Nexus between Remittance, Nonperforming Loan, Money Supply, and Financial Volatility: An Application of ARDL," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 8(1), pages 11-29.

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