Investor sentiment and sovereign bonds

Yulin Li

Journal of International Money and Finance, 2021, vol. 115, issue C

Abstract: Investor sentiment is an important driver of sovereign bond returns in emerging markets. Using local sovereign debt and external sovereign debt, this paper finds that sentiment is negatively related to future bond returns on average across emerging market countries. This negative sentiment effect suggests that investors treat emerging market sovereign bonds as risky assets rather than as safe assets. This paper further finds that this sentiment effect is relatively stronger when liquidity frictions are higher, which is consistent with illiquid bonds being generally harder to arbitrage.

Keywords: Sovereign bond returns; Investor sentiment; Local currency debt; Foreign currency debt; Emerging markets (search for similar items in EconPapers)
JEL-codes: E43 G12 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:115:y:2021:i:c:s0261560621000371

DOI: 10.1016/j.jimonfin.2021.102388

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