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Asset Prices, Leverage and Portfolio Rebalancing Drive Global Capital Flows Cycle

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Listed:
  • J. Scott Davis
  • Eric Van Wincoop

Abstract

The amount of leverage—borrowed funds relative to the value of underlying assets—increases for risky holdings during downturns, motivating their ultimate sale to achieve a more secure financial position. The opposite occurs during upswings, as risky assets gain favor.

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Handle: RePEc:fip:d00001:93434
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File URL: https://www.dallasfed.org/research/economics/2021/1130
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