دانلود رایگان مقاله انگلیسی جریان سهام، بازده سهام و نرخ تبدیل - وایلی 2017

Abstract

We explore the effects of equity flows between U.S. and U.K. investors upon equity and exchange rate returns within a unified empirical framework on the basis of a trivariate vector autoregressive system that incorporates mean and volatility spillovers and allows for dynamic conditional correlations. Our findings are as follows: First, we reveal strong evidence of volatility spillovers across equity returns, exchange rate returns, and equity flows. Second, we find strong evidence that U.K. investors rebalance their portfolios by engaging in a positive feedback trading known in the literature as “trend chasing.” Third, we document strong dynamic effects from net flows to equity returns, illustrating a trading rule that portfolios are dynamically adjusted over a short‐run horizon influencing changes in stock returns. Last, correlation uncertainty appears to be reduced from the start of the 1990s onwards.

5 | CONCLUSIONS

The paper has explored the effects of equity flows between U.S. and U.K. investors upon equity and exchange rate returns within a unified empirical framework on the basis of a trivariate VAR system, which incorporates mean and volatility spillovers and allows for DCCs. Our findings extend Hau and Rey (2004, 2006) in several ways. First, we reveal strong evidence that U.K. investors rebalance their portfolios by engaging in a positive feedback trading known in the literature as trend chasing. Positive feedback trading behavior suggests that an increase in this month’s returns differential leads to an increase in net flows over the next 2 months. Second, we document strong dynamic effects from net flows to equity returns, illustrating a trading rule that portfolios are dynamically adjusted over a short‐run (1–2 months) horizon influencing stock returns. Third, there is evidence of volatility spillovers across equity returns, exchange rate returns, and equity flows.

Overall, our empirical results are indicative of the effects that increased capital mobility, observed in recent years, has on capital flows and exchange rate movements. Following the case of U.S. and U.K. markets, we observe that as net purchases of cross‐border equities follow a dynamic path of correlations, their effect on nominal exchange rates is becoming increasingly important. Thus, if monetary policy makers respond explicitly to deviations of asset prices from their steady‐state or fundamental levels, as part of their pursuit for inflation and output gap stability, particular attention should be paid in equity flows as a determinant of exchange rate movements. Last, our results carry implications for the important issue of explaining equity returns and exchange rates. In recent years, a number of studies have shown that investors’ private information plays a central role in determining exchange rates or capital flows. Our findings extend this conjecture by demonstrating that private information relevant for capital movements is connected to the stock market and that this information generates dynamic correlations.