Post-graduation from the original sin problem The effects of market participation on sovereign debt markets

José Antonio Ocampo, German D. Orbegozo and Mauricio Villamizar-Villegas

Working papers from Red Investigadores de Economía

Abstract: We evaluate the effects of the sovereign debt structure by examining various degrees of bond market participation and diversification within different bond maturities and investor type. We use a unique Colombian panel dataset, comprised of all government bond maturities in the hands of public and private institutions during 2006-2018. For identification, we propose an instrumental variable approach, specific to each investor group. We find that an increase in non-residents' market share of a 1 percentage point reduces bond yields by 35% and lowers volatility by 0.8%, relative to their mean values. Alternatively, we see an opposite effect for both pension funds and the banking sector. Finally, we find that market concentration makes local-currency yields more sensitive to global financial shocks.

Keywords: Term structure; Bond market participation; Bond market concentration; Bond holdings (search for similar items in EconPapers)
JEL-codes: E43 G01 G11 G15 (search for similar items in EconPapers)
Pages: 25
Date: 2020-04
New Economics Papers: this item is included in nep-fmk and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: Post-graduation from the original sin problem The effects of market participation on sovereign debt markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rie:riecdt:39

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