Original Sin Redux: Role of Duration Risk

Carol Bertaut, Valentina Bruno and Hyun Song Shin

No 18757, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of US investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates roll-over risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics due to strategic complementarities among mutual fund investors.

Keywords: Emerging economies; Strategic complementarity; Currency risk; Duration (search for similar items in EconPapers)
JEL-codes: F65 G23 H63 (search for similar items in EconPapers)
Date: 2024-01
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Related works:
Working Paper: Original Sin Redux: Role of Duration Risk (2025)
Working Paper: Original sin redux: role of duration risk (2023)
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