Exchange Rate Fluctuations and International Portfolio Rebalancing in Thailand

ByJacob Gyntelberg, Subhanij Tientip, Mico Loretan

August 1, 2012

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 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.

Subject: Currency markets, Currency swaps, Exchange rates, Financial markets, Foreign exchange, Stock markets

Keywords: baht, capital flows, Currency markets, Currency swaps, dollar, equity market, exchange rate, Exchange rates, Foreign exchange market, FX market, Global, investor, nonresident investor, order flow, portfolio rebalancing, spot exchange rate, Stock markets, Thai baht, Thailand, WP

Pages:
19
Volume:
2012
DOI:
https://doi.org/10.5089/9781475505641.001
Issue:
214
Series:
Working Paper No. 2012/214
Stock No:
WPIEA2012214
ISBN:
9781475505641
ISSN:
1018-5941

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