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Private information, capital flows, and exchange rates

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  • Gyntelberg, Jacob
  • Loretan, Mico
  • Subhanij, Tientip

Abstract

Not all international capital flows influence exchange rates equally. Capital flows induced by foreign investors’ transactions in local stock markets have an impact on exchange rates that is economically significant and permanent, whereas capital flows induced by investors’ transactions in local government bond markets do not. The differences in price impacts are related to differences in the amounts of private information conveyed by these flows. Our findings are based on daily-frequency data on all transactions undertaken by foreign investors in the stock, bond, and onshore FX markets of Thailand over a period of nearly two years.

Suggested Citation

  • Gyntelberg, Jacob & Loretan, Mico & Subhanij, Tientip, 2018. "Private information, capital flows, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 40-55.
    • Handle: RePEc:eee:jimfin:v:81:y:2018:i:c:p:40-55
    DOI: 10.1016/j.jimonfin.2017.10.005
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    10. Piccotti, Louis R. & Schreiber, Ben Z., 2020. "Information shares in a two-tier FX market," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 19-35.
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    More about this item

    Keywords

    Order flow; Private information; Exchange rate models; Market microstructure; Emerging markets;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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