TY  - JOUR
AU  - Hau,Harald
AU  - Rey,Hélène
TI  - Global Portfolio Rebalancing Under the Microscope
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14165
PY  - 2008
Y2  - July 2008
UR  - http://www.nber.org/papers/w14165
L1  - http://www.nber.org/papers/w14165.pdf
N1  - Author contact info:
Harald Hau
University of Geneva and GFRI
Unipignon
40, Boulevard du Pont d'Arve
CH 1211 Geneva 4
Switzerland
E-Mail: prof@haraldhau.com

Helene Rey
London Business School
Regents Park
London NW1 4SA
UNITED KINGDOM
Tel: 44 2070008412
E-Mail: hrey@london.edu
AB  - Cross border capital flows and returns on assets are two key variables in international macroeconomics. Difficult endogeneity issues plague any analysis of their correlations in aggregate data. This paper examines the dynamics of international portfolios with a unique data set on the stock allocations of approximately 6,500 international equity funds domiciled in four different currency areas during a 5 year period. The disaggregated data structure allows us to examine the effect of realized returns on portfolio adjustments. Do managers rebalance their portfolios towards their desired weights or do they increase their exposure to appreciating assets? We find strong support for portfolio rebalancing behavior aimed at stabilizing exchange rate risk and equity risk exposure around desired levels. These findings are important for the new open economy macroeconomics models featuring endogenous portfolio choice. They should also help inform the burgeoning theoretical literature in macroeconomics and in finance that aims at modeling financial intermediaries.
ER  -