This empirical paper aims to review a previous literature entitles “Portfolio Reallocation and Exchange Rate Dynamics”. The literature stated that including financial market structure can provide a micro-foundation to complement other macro-based models for exchange rate dynamics which typically are meaningful for the medium and long terms but not satisfactory for the short run. The model in the literature offers another way to look at exchange rate dynamics that is significant in the short run and more practical in nature. Undoubtedly, many investors in the financial market, such as traders, dealers, fund managers, and speculators who adjust their portfolio components more frequently relative other investors, are interested in their short-run performance and value any strong models in explaining relationships among different financial variables. Reviewing the previous findings done several years ago is to ensure the validity of the proposed model and is needed as the financial market and economic conditions change from time to time, particularly in the current era.
Therefore, this paper tries to replicate the approach adopted in the literature and covers the period subsequent to it. As this is a short empirical paper, however, some of the operations will be cut down and simplified with a few assumptions while maintaining the principal concepts as much as possible.
Wong, K. C. (2017). Portfolio recallocation and exchange rate dynamics. Lingnan Journal of Banking, Finance and Economics, 6. Retrieved from http://commons.ln.edu.hk/ljbfe/vol6/iss1/3