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Exchange Rate Fluctuations and International Portfolio Rebalancing in Thailand

  • Jacob Gyntelberg
  • Subhanij Tientip
  • Mico Loretan

We present empirical evidence that the Thai baht’s value is driven in part by investors’ cross-border equity portfolio rebalancing decisions. Our results are based on comprehensive datasets of FX and stock market transactions undertaken by nonresident investors in Thailand in 2005 and 2006. Higher returns in the stock market relative to a reference stock market are associated with net sales of equities by these investors and a depreciation of the Thai baht. Net purchases of Thai equities lead to an appreciation of the Thai baht. Foreign investors do not appear to hedge the foreign exchange risk related to their stock market positions.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/214.

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Length: 19
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/214
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  1. Cheung, Yin-Wong & Chinn, Menzie & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Center for International Economics, Working Paper Series qt5fc508pt, Center for International Economics, UC Santa Cruz.
  2. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
  3. Abhakorn, Pongrapeeporn & Tantisantiwong, Nongnuch, 2012. "A reexamination of capital controls’ effectiveness: Recent experience of Thailand," Journal of Asian Economics, Elsevier, vol. 23(1), pages 26-38.
  4. 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.
  5. Ferreira Filipe, Sara, 2012. "Equity order flow and exchange rate dynamics," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 359-381.
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