Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change

• 成果类型: Article
• 署名作者: Hau, Harald; Massa, Massimo; Peress, Joel
• 署名单位: INSEAD Business School
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp095
• 发表日期: 2010
• 页码: 1681
• 关键词: Stocks; price; arbitrage; FLOWS

摘要

Traditional portfolio balance theory derives a downward sloping currency demand function from limited international asset substitutability. Historically, this theory enjoyed little empirical support. We provide direct evidence by examining the exchange rate effect of a major redefinition of the MSCI Global Equity Index in 2001 and 2002. The index redefinition implied large changes in the representation of different countries in the MSCI Global Equity Index and therefore produced strong exogenous equity flows by index funds. Our event study reveals that countries with a relatively increasing equity representation experienced a relative currency appreciation upon announcement of the index change. Moreover, stock markets that are upweighted (downweighted) feature a higher (lower) permanent comovement of their currency with the basket of other MSCI currencies. (JEL F21, F31, G11, G15)