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Private Information, Capital Flows, and Exchange Rates

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  • Jacob Gyntelberg
  • Subhanij Tientip
  • Mico Loretan

Abstract

We demonstrate empirically that not all capital flows influence exchange rates equally: Capital flows induced by foreign investors’ stock market transactions have both an economically significant and a permanent impact on exchange rates, whereas capital flows induced by foreign investors’ transactions in government bond markets do not. We relate these differences in the price impact of capital flows to differences in the amounts of private information conveyed by these flows. Our empirical findings are based on novel, daily-frequency datasets on prices and quantities of all transactions of foreign investors in the stock, bond, and onshore FX markets of Thailand.

Suggested Citation

  • Jacob Gyntelberg & Subhanij Tientip & Mico Loretan, 2012. "Private Information, Capital Flows, and Exchange Rates," IMF Working Papers 12/213, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/213
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    Cited by:

    1. Nasha Ananchotikul & Longmei Zhang, 2014. "Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets," IMF Working Papers 14/156, International Monetary Fund.
    2. Fischer, Andreas M. & Greminger, Rafael & Grisse, Christian, 2017. "Portfolio Rebalancing in Times of Stress," Globalization and Monetary Policy Institute Working Paper 322, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    Bond markets; Capital flows; Exchange markets; Exchange rates; Economic models; Foreign investment; Stock markets; Thailand; Order flow; private information; exchange rate models; market microstructure; bond; bond market; stock market; bonds;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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