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Working Papers

Global Portfolio Rebalancing and Exchange Rates*

Camanho, N., Hau H., Rey H.
  Latest Draft: 10 Jun 2020,

Abstract:
We examine international equity allocations at the fund level and show how different returns on the foreign and domestic proportion of portfolios determine rebalancing behavior and trigger capital ‡flows. We document the heterogeneity of rebalancing across fund types, its greater intensity under higher exchange rate volatility, and the exchange rate effect of such rebalancing. The observed dynamics of equity returns, exchange rates, and fund-level capital ‡ows are compatible with a model of incomplete FX risk trading in which exchange rate risk partially segments international equity markets.



Citation:
Camanho, Nelson, Harald Hau and Helene Rey. Global portfolio rebalancing and exchange rates, 2020
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*This material is based upon work supported by ERC Advanced Grant 695722




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