Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960856 | Journal of Financial Markets | 2015 | 23 Pages |
Abstract
We test the hypothesis that hedging by international equity portfolio managers affects exchange rates-the “hedging channel of exchange rate adjustment”. A key institutional feature of the foreign exchange market, the “London 4Â p.m. fix”, is used to identify times when hedging trades concentrate. The direction of hedging trades is identified by past equity returns. The findings show that equity market appreciation over the month can be used to predict currency depreciation before the end-of-month fix, providing evidence that hedging activity plays a role in exchange rate determination.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Michael Melvin, John Prins,