Winners and Losers from Sovereign Debt Inflows: Evidence from the Stock Market

Tomas Williams, Lorenzo Pandolfi, Alberto Martin and Fernando Broner

No 1152, Working Papers from Barcelona School of Economics

Abstract: We study the effects of sovereign debt inflows on domestic firms. To do so, we exploit episodes of large sovereign debt inflows, which follow the announcements of the inclusion of six emerging countries into major sovereign debt indexes. We find that these events reduce government bond yields, appreciate the domestic currency, and have heterogeneous stock-market effects on domestic firms. Firms operating in tradable industries experience lower returns than firms in non-tradable industries. In addition, financial firms, government-related firms, and firms that rely more on external financing experience higher returns. The effect on financial and government-related firms is stronger in countries that display larger reductions in government bond yields. The effect on tradable firms is stronger in countries that display stronger appreciations. We provide a stylized model that rationalizes these results. Our findings shed novel light on the channels through which sovereign debt inflows affect firms in emerging countries.

Keywords: emerging markets; sovereign debt; capital inflows; exchange rate; government yields; stock prices (search for similar items in EconPapers)
JEL-codes: F31 F32 F36 G15 G23 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (4)

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Working Paper: Winners and losers from Sovereign debt inflows: evidence from the stock market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1152

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