City Research Online

Abstract

This thesis comprises three essays on international finance, focusing on international capital flows, foreign exchange market and official foreign exchange intervention. The first chapter assesses the relative contribution of common (push) and country specific (pull) factors to the variation of bond and equity flows from the US to 55 other countries. Using a Bayesian dynamic latent factor model, we find that more than 80% of the variation in bond and equity flows is due to push factors from the US to other countries. Hence global economic forces seem to prevail over domestic economic forces in explaining movements in international portfolio flows. The dynamics of push and pull factors can be partially explained by US and foreign macroeconomic indicators respectively.

The second chapter presents new evidence on the microstructure of exchange rates in emerging markets. Using a novel dataset that records all spot US dollar transactions in the Chilean foreign exchange intraday market over 4 weeks in 2008 and 6 weeks in 2009, we investigate the relationship between exchange rates and order flows. We find supporting evidence that the contemporaneous relationship between exchange rates and order flows is time-varying. In this market, interbank order flow only accounts for a small portion of the exchange rate impact of total order flow, and the central bank orders influence private order flow behaviour. Compared to advanced economies, cointegration tests and long run relationship estimations between exchange rate and order flow indicate slow reversion from long run trend deviations.

In the third chapter, we examine the intraday effects and success rates of official intervention in the Chilean foreign exchange market. The impact of official intervention on exchange rate daily returns has been widely revised in the literature, confirming in many cases the signalling channel for the transmission of the intervention effects. Our investigation at a higher frequency indicates that microstructure channels also work for the Chilean case. Specifically, the central bank's order flow directly affects the exchange rate returns contemporaneously and within a 2 hours range around the intervention event. In addition, actual interventions affect the price impact of private order flows, and are successful at moderating its trend.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance Doctoral Theses Bayes Business School > Bayes Business School Doctoral Theses

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