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Currency Returns, Intrinsic Value, and Institutional-Investor Flows.
- Source :
- Journal of Finance (Wiley-Blackwell); Jun2005, Vol. 60 Issue 3, p1535-1566, 32p, 7 Charts, 4 Graphs
- Publication Year :
- 2005
-
Abstract
- We decompose currency returns into (permanent) intrinsic-value shocks and (transitory) expected-return shocks. We explore interactions between these shocks, currency returns, and institutional-investor currency flows. Intrinsic-value shocks are: dwarfed by expected-return shocks (yet currency returns overreact to them); unrelated to flows (although expected-return shocks correlate with flows); and related positively to forecasted cumulated-interest differentials. These results suggest flows are related to short-term currency returns, while fundamentals better explain long-term returns and values. They also rationalize the long-observed poor performance of exchange-rate models: by ignoring the distinction between permanent and transitory exchange-rate changes, prior tests obscure the connection between currencies and fundamentals. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00221082
- Volume :
- 60
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Journal of Finance (Wiley-Blackwell)
- Publication Type :
- Academic Journal
- Accession number :
- 16894020
- Full Text :
- https://doi.org/10.1111/j.1540-6261.2005.00769.x