Private information, capital flows, and exchange rates

Jacob Gyntelberg, Mico Loretan and Tientip Subhanij



JEL classification
C22, E58, F31, F37, G14

Order flow, private information, exchange rate models, market microstructure, emerging markets


We demonstrate empirically that not all international capital flows influence exchange rates equally. Capital flows induced by foreign investors' transactions in local stock markets have an impact on exchange rates that is both economically significant and permanent, whereas capital flows induced by foreign investors' transactions in the local government bond market do not. We relate the differences in the price impacts of capital flows to differences in the amounts of private information conveyed by these flows. Our empirical findings are based on novel, daily-frequency datasets on prices and quantities of all transactions undertaken by foreign investors in the stock, bond, and onshore FX markets of Thailand.