TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Ramadorai,Tarun
TI  - Currency Returns, Institutional Investor Flows, and Exchange Rate Fundamentals
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9080
PY  - 2002
Y2  - July 2002
UR  - http://www.nber.org/papers/w9080
L1  - http://www.nber.org/papers/w9080.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu

Tarun Ramadorai
Said Business School
Park End St
Oxford OX1 1HP, United Kingdom
E-Mail: tarun.ramadorai@sbs.ox.ac.uk
AB  - We explore the interaction between exchange rates, institutional investor currency flows and exchange-rate fundamentals. We find that these flows are highly correlated with contemporaneous and lagged exchange rate changes, and that they carry information for future excess currency returns. This information, however, is not strongly linked to future fundamentals. Flows are important in understanding transitory elements of excess returns, which include short-run underreaction and long-run overreaction. However, flows have a zero or negative correlation with permanent components of excess returns. We find that measured fundamentals - not flows - seem important in understanding permanent elements of excess returns. We conclude that investor flows are important for understanding deviations of exchange rates from fundamentals, but not for understanding the long-run currency values.
ER  -