Cross-Border Returns Differentials

Stephanie E. Curcuru, Tomas Dvorak and Francis E. Warnock
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Stephanie E. Curcuru: Board of Governors of the Federal Reserve System
Tomas Dvorak: Union College
Francis E. Warnock: Darden Graduate School of Business, University of Virginia; Institute for International Integration Studies, Trinity College Dublin; Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas; and National Bureau of Economic Research

The Quarterly Journal of Economics, 2008, vol. 123, issue 4, pages 1495-1530

Abstract: Using a monthly data set on the foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential for portfolio securities is far smaller than previously reported. Examining all U.S. claims and liabilities, we find that previous estimates of large differentials are biased upward. The bias owes to computing implied returns from an internally inconsistent data set of revised data; original data produce a much smaller differential. We also attempt to reconcile our findings with observed patterns of cumulated current account deficits, the net international investment position, and the net income balance. Overall, we find no evidence that the United States can count on earning substantially more on its claims than it pays on its liabilities. (c) 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2008
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