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on International Finance |
| By: | Nathan, Daniel; Ben Zeev, Nadav |
| Abstract: | The equity hedging channel predicts that institutional investors’ (IIs’) hedging of their foreign equity position’s FX exposure via foreign currency forward contracts leads to a positive relation between this position and IIs’ supply of foreign currency forwards; in equilibrium, this prediction implies a negative relation between foreign equity prices and forward and spot rates. We use novel daily data on Israeli IIs’ FX forward flows to test this equity hedging channel within a suitable Bayesian local projection model, finding strong evidence supporting a meaningful such channel. |
| Keywords: | Equity Hedging Channel; Foreign Currency Forward Flows; Forward Exchange Rate; Spot Exchange Rate; Global Stock Prices; Institutional Investors; Bayesian Local Projections. |
| JEL: | E44 F3 F31 G15 G23 |
| Date: | 2022–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112909&r= |
| By: | Czech, Robert (Bank of England); Della Corte, Pasquale (Imperial College London and Centre for Economic Policy Research (CEPR)); Huang, Shiyang (University of Hong Kong); Wang, Tianyu (Bank of England) |
| Abstract: | We study the information content of foreign exchange (FX) option volume using a unique dataset on over-the-counter FX options with disclosed counterparty identities and contract characteristics. Our study shows that FX option volume can predict future exchange rate returns, especially when the demand for the US dollar is high. In support of information-based arguments, we also document that the exchange rate predictability is stronger around macro-announcement days or when using options with higher embedded leverage. Finally, we show that hedge funds and real money investors have superior skills in predicting future exchange rates compared to other investor types. |
| Keywords: | Currency return; foreign exchange option; Informed trading; dollar demand |
| JEL: | F31 G12 G14 G15 |
| Date: | 2022–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0964&r= |
| By: | Mr. Serkan Arslanalp; Laura Sunder-Plassmann |
| Abstract: | We use a new, comprehensive data set on the sovereign debt investor base to document three novel empirical facts: (i) sovereign debt is repatriated - that is, shifted from external private to domestic investors - prior to sovereign defaults; (ii) not all crises are equal: evidence for repatriation during banking and currency crises is more limited; and (iii) the nature of defaults matters: external investors do not leave during preemptive debt restructurings. We further show that repatriation appears to be prevalent when defaults happen in large markets with low capital controls. The data set we use is uniquely suited to analyzing investor base dynamics during rare crises due to its large cross-section and time series, covering 180 countries from 1989 to 2020. |
| Keywords: | Sovereign debt, External debt, Capital flows, Sovereign default, Financial crisis, Banking crisis, Currency crisis |
| Date: | 2022–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/077&r= |