Capital Flows and Sovereign Debt Markets: Evidence from Index Rebalancings

Lorenzo Pandolfi and Tomas Williams

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In this paper, we analyze how capital flows into the sovereign debt market affect government bond prices and liquidity. Additionally, we explore whether these flows spill over to the exchange rate. To address endogeneity concerns, we construct a measure of informationless capital Flows Implied by (mechanical) Rebalancings (FIR) in the largest local currency government debt index for emerging countries. We find that FIR is associated with higher returns on bonds and greater depth in the sovereign debt market after the rebalancings. These capital flows also impact the exchange rate market; larger inflows (outflows) are associated with greater currency appreciations (depreciations).

Keywords: sovereign debt; international capital flows; index rebalancings; mutual funds; benchmark indexes; exchange rate. (search for similar items in EconPapers)
JEL-codes: F32 G11 G12 G15 G23 (search for similar items in EconPapers)
Date: 2017-11-12
New Economics Papers: this item is included in nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Financial Economics, 2019, 132(2), 384-403

Downloads: (external link)
http://www.csef.it/WP/wp487.pdf (application/pdf)

Related works:
Journal Article: Capital flows and sovereign debt markets: Evidence from index rebalancings (2019)
Working Paper: Capital Flows and Sovereign Debt Markets: Evidence from Index Rebalancings (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:487

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