Private Information, Capital Flows, and Exchange Rates

29 Pages Posted: 1 Nov 2012

See all articles by Jacob Gyntelberg

Jacob Gyntelberg

Nordea Group; University of Copenhagen - Department of Economics

Mico Loretan

Swiss National Bank

Subhanij Tientip

affiliation not provided to SSRN

Date Written: August 2012

Abstract

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.

Keywords: Order Flow, Private Information, Exchange Rate Models, Market Microstructure, Capital Flows, Exchange Rates, Foreign Investment, Stock Markets, Economic Models

Suggested Citation

Gyntelberg, Jacob and Loretan, Mico and Tientip, Subhanij, Private Information, Capital Flows, and Exchange Rates (August 2012). IMF Working Paper No. 12/213. Available at SSRN: https://ssrn.com/abstract=2169758

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

Subhanij Tientip

affiliation not provided to SSRN

No Address Available

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