Global Portfolio Rebalancing Under the Microscope / Harald Hau, Hélène Rey.

Format:

Book

Author/Creator:

Hau, Harald.

Contributor:

National Bureau of Economic Research.

Rey, Hélène.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14165.

NBER working paper series no. w14165

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

Cross border capital flows and returns on assets are two key variables in international macroeconomics. Difficult endogeneity issues plague any analysis of their correlations in aggregate data. This paper examines the dynamics of international portfolios with a unique data set on the stock allocations of approximately 6,500 international equity funds domiciled in four different currency areas during a 5 year period. The disaggregated data structure allows us to examine the effect of realized returns on portfolio adjustments. Do managers rebalance their portfolios towards their desired weights or do they increase their exposure to appreciating assets? We find strong support for portfolio rebalancing behavior aimed at stabilizing exchange rate risk and equity risk exposure around desired levels. These findings are important for the new open economy macroeconomics models featuring endogenous portfolio choice. They should also help inform the burgeoning theoretical literature in macroeconomics and in finance that aims at modeling financial intermediaries.

Notes:

Print version record

July 2008.