Global Portfolio Rebalancing Under the Microscope

Abstract

and the AEA 2009 meeting. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

International portfolio diversification is better than you think

“…22 Using historical average returns does not affect our main results but regression coefficients for expected returns become very unstable. In some specifications, past average returns enter with a negative sign, which is actually consistent with optimal portfolio rebalancing in the presence of mean-reverting stock returns (Hau and Rey, 2007). 23 We also note that all reported standard errors are robust to clustering in the source country dimension.…”

“…Though the CPIS data certainly suffer from measurement errors (Lane and Milesi-Ferretti, forthcoming), the reporting of holdings by developed markets is of high quality. In particular, the geographical distribution of CPIS aggregate data is found to be strongly correlated with micro data on international mutual funds equity holdings (Hau and Rey, 2007).…”

Policy Uncertainty Spillovers to Emerging Markets Evidence from Capital Flows

“…Furthermore, our findings of differential impacts of advanced country policy uncertainty on bond vs equity flows also add to the evidence regarding rebalancing effects in the management of investment fund portfolios. For example, Hau & Rey (2008) find -using fund level data similar to that used by the present study -that in addition to rebalancing foreign portfolio shares, equity fund managers tend to rebalance their portfolios with the aim of stabilising exchange rate risk and equity risk exposure around desired levels.…”

Foreign Currency Bank Funding and Global Factors

“…The first term in the second line reflects a standard portfolio rebalancing result (e.g. Hau and Rey [2008]). Funding adjusts to rebalance the direct impact of the exchange rate on the currency exposure.…”