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Currency matters: Analyzing international bond portfolios

John Burger, Francis E. Warnock and Veronica Warnock

Journal of International Economics, 2018, vol. 114, issue C, 376-388

Abstract: Bonds denominated in the investor's currency are special. We show this indirectly in a global dataset of bilateral bond holdings—indirectly because the global holdings dataset does not differentiate by currency denomination—and then more directly in datasets of US holdings of foreign bonds that do differentiate by currency. We find that the share of a country's bonds denominated in investors' currencies is an important determinant of the amount of cross-border investment it receives; factors associated with greater (or less) cross-border investment in bonds differ by currency denomination; and one phenomenon of international portfolios—the ever-present home bias—in some cases actually disappears when bonds are denominated in the investor's currency, suggesting that the home bias is to some extent a home currency bias.

Keywords: Home bias; International bonds; International investment (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:114:y:2018:i:c:p:376-388

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