Private Information, Capital Flows, and Exchange Rates

Author/Editor: Jacob Gyntelberg ; Subhanij Tientip ; Mico Loretan
Publication Date: August 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 12/213
Frequency: Biannually
Subject(s): Capital flows | Economic models | Exchange rates | Foreign investment | Stock markets

Author's Keyword(s): Order flow | private information | exchange rate models | market microstructure.
Publication Date: August 01, 2012
ISBN/ISSN: 9781475505634/1018-5941 Format: Paper
Stock No: WPIEA2012213 Pages: 28
US$18.00 (Academic Rate:
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