Global Portfolio Rebalancing and Exchange Rates

Finance

Speaker:Nelson Camanho
Date: Tuesday 19 March 2019
Time: 13:45
Location: Kolade Teaching Room

Further details

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