Logo
Munich Personal RePEc Archive

Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination

Nathan, Daniel and Ben Zeev, Nadav (2022): Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination.

[img]
Preview
PDF
MPRA_paper_112909.pdf

Download (1MB) | Preview

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.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.