Dollar debt and equity returns

Charles Braymen, Tirimba Obonyo and Nicholas E. Woessner

Applied Economics Letters, 2021, vol. 28, issue 12, 1021-1025

Abstract: This article examines the relationship between US dollar-denominated debt and the correlations between the equity markets of 31 countries from 2007 to 2016. Our results indicate that the balance sheet mismatch imposed by the issuance of dollar-denominated debt by foreign firms leads to a common risk factor that extends across international boundaries. These results suggest that dollar-denominated debt should be considered in the design of internationally diversified equity portfolios alongside other factors of economic integration such as trade and foreign direct investment.

Date: 2021
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DOI: 10.1080/13504851.2020.1795066

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