TY - JOUR
T1 - Shorting the Dollar When Global Stock Markets Roar
T2 - The Equity Hedging Channel of Exchange Rate Determination
AU - Ben Zeev, Nadav
AU - Nathan, Daniel
N1 - Publisher Copyright:
© The Author(s) 2024. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
PY - 2024/12/1
Y1 - 2024/12/1
N2 - This paper investigates the influence of global equity market value shocks on institutional investors’ (IIs’) hedging behavior and the resultant effects on exchange rates. Employing unique granular daily data on Israeli IIs’ foreign exchange (FX) forward flows and prices and a granular instrumental variable estimation approach, we find that foreign equity market value shocks generate significant selling of U.S. dollar forwards by IIs, as a hedge against heightened FX exposure, along with significant exchange rate appreciation. A value-shock-induced one-standard-deviation increase in IIs’ supply of forward flows appreciates IIs’ forward rate by 0.53%.
AB - This paper investigates the influence of global equity market value shocks on institutional investors’ (IIs’) hedging behavior and the resultant effects on exchange rates. Employing unique granular daily data on Israeli IIs’ foreign exchange (FX) forward flows and prices and a granular instrumental variable estimation approach, we find that foreign equity market value shocks generate significant selling of U.S. dollar forwards by IIs, as a hedge against heightened FX exposure, along with significant exchange rate appreciation. A value-shock-induced one-standard-deviation increase in IIs’ supply of forward flows appreciates IIs’ forward rate by 0.53%.
UR - http://www.scopus.com/inward/record.url?scp=85210757714&partnerID=8YFLogxK
U2 - 10.1093/rapstu/raae012
DO - 10.1093/rapstu/raae012
M3 - Article
AN - SCOPUS:85210757714
SN - 2045-9920
VL - 14
SP - 640
EP - 666
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
IS - 4
ER -