Private Information, Capital Flows, and Exchange Rates

Author/Editor:

Jacob Gyntelberg ; Subhanij Tientip ; Mico Loretan

Publication Date:

August 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2012/213

Subject:

Currency markets Exchange rates Financial markets Foreign exchange Securities markets Stock markets

Frequency:

Biannually

English

Publication Date:

August 1, 2012

ISBN/ISSN:

9781475505634/1018-5941

Stock No:

WPIEA2012213

Pages:

28

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