Abstract:This paper tests the portfolio rebalancing model of Hau and Rey (2006) based on a sample of 23 emerging economies for the period of 1994-2010. We find that the exchange rate returns in emerging economies are significantly and positively correlated with excess emerging stock market returns vis-à-vis the United States, indicating that portfolio rebalancing does not characterize the exchange rate movements for emerging economies. Our findings are strongly supported at daily and monthly frequencies, and are robust… Show more
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