International Portfolio Rebalancing and Exchange Rate Fluctuations in Thailand

19 Pages Posted: 27 Aug 2009

See all articles by Jacob Gyntelberg

Jacob Gyntelberg

Nordea Group; University of Copenhagen - Department of Economics

Mico Loretan

Swiss National Bank

Tientip Subhanij

Bank of Thailand

Eric Ho Pan Chan

Bank for International Settlements (BIS)

Date Written: August 1, 2009

Abstract

We present empirical evidence that the Thai exchange rate is driven in part by international investors' cross-border portfolio rebalancing decisions. Our results are based on two comprehensive, daily-frequency datasets of foreign exchange and equity market capital flows undertaken by nonresident investors in Thailand in 2005 and 2006. We find that net purchases of Thai equities by nonresident investors lead to an appreciation of the Thai baht. In addition, higher returns in the Thai equity market relative to a reference stock market are associated both with net sales of Thai equities by these investors and with a depreciation of the Thai baht. Foreign investors do not appear to hedge the foreign exchange risk related to their equity market positions. Despite this, we find that exchange rate movements were not key drivers of nonresident investors' equity market investment choices in our sample period.

Keywords: foreign exchange market, capital flows, Thailand, equity market, nonresident investors, portfolio rebalancing

JEL Classification: F30, F31

Suggested Citation

Gyntelberg, Jacob and Loretan, Mico and Subhanij, Tientip and Chan, Eric Ho Pan, International Portfolio Rebalancing and Exchange Rate Fluctuations in Thailand (August 1, 2009). BIS Working Paper No. 287. Available at SSRN: https://ssrn.com/abstract=1462706 or http://dx.doi.org/10.2139/ssrn.1462706

Jacob Gyntelberg (Contact Author)

Nordea Group ( email )

Grønjordsvej 10
Copenhagen, DK - 2300
Denmark

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

Mico Loretan

Swiss National Bank ( email )

Fraumuensterstr. 8
Zuerich, 8022
Switzerland

Tientip Subhanij

Bank of Thailand ( email )

273 Samsen Road
Bangkhunprom, Bangkok 10200
United States

Eric Ho Pan Chan

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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