The Non-U.S. Bank Demand for U.S. Dollar Assets

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Abstract/Contents

Abstract: The USD asset share of non-U.S. banks captures the relative demand for USD denominated assets by these investors. An instrumental variable strategy identifies a causal link from the USD asset share to the USD exchange rate. Furthermore, cross-sectional asset pricing tests show that the USD asset share is a highly significant pricing factor for carry trade strategies. The USD asset share also forecasts the movement of foreign currency against U.S. dollar with economically large magnitude, high statistical significance, and large explanatory power, both in sample and out of sample, pointing towards time varying risk premia. It takes 2-5 years for exchange rate risk premia to normalize in response to demand shocks.

Type of resource	text
Date created	September 1, 2021

DOI	https://doi.org/10.25740/ng250sf8807
Location	https://purl.stanford.edu/ng250sf8807

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License: This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).

Preferred citation: Adrian, T. and Xie, P. (2022). The Non-U.S. Bank Demand for U.S. Dollar Assets. Stanford Digital Repository. Available at https://purl.stanford.edu/ng250sf8807

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