The volatility of flexible exchange rates greatly exceeds what most analysts anticipated at the advent of generalized floating. The Dornbusch overshooting model accounts for the fact that exchange rates fluctuate more than the underlying fundamentals. This paper presents a model which may help...

This paper develops a two-period model of the spot foreign exchange market that emphasizes inter-dealer trading. At the outset, strategic risk-averse dealers each receive orders from non-dealer customers that are not generally observable. Then, dealers trade among themselves. Thus, each dealer...

International mutual funds are key contributors to the globalization of financial markets and one of the main sources of capital flows to emerging economies. Despite their importance in emerging markets, little is known about their investment allocation and strategies. This article provides an...