Felipe Aldunate achieves an important academic milestone by publishing a study on the impact of pension funds on the Chilean foreign exchange market in one of the world's most influential finance journals.
Professor Felipe Aldunate, Director of the Economics and Finance Area and Deputy Director of the Center for Corporate Governance and Society at ESE Business Schoolhas published his most recent research in the prestigious Journal of Financial Economicsone of the five highest-impact journals worldwide in the Business/Finance category, according to Clarivate (JCR), and part of the exclusive FT50 list.
The study, entitled Pension Fund Flows, Exchange Rates, and Covered Interest Rate Parity", rigorously addresses the effects on the Chilean financial market of the AFP fund-switching recommendations made by advisory firms. These recommendations mobilize large volumes of capital, generating significant foreign currency sales and purchases due to the high international exposure of equity funds. The analysis reveals how these flows directly affect the Chilean peso exchange rate and the covered interest rate parity.
One of the most relevant findings of the article is the role played by local banks as liquidity providers in the spot foreign exchange market. To meet the demand for the purchase or sale of foreign currency by pension funds, these institutions engage in operations in the international market, generating effects that also extend to the derivatives market. Furthermore, the research explains why, due to regulatory restrictions and arbitrage costs, deviations in the covered parity may persist over time.
"Since I join the ESE, I have concentrated my research efforts on this paper. I would like to sincerely thank those who have supported me, helping me to find the necessary opportunities to achieve this publication," commented Professor Aldunate.
