Which exchange rate matters to global investors?

Kristy Jansen, Hyun Song Shin and Goetz von Peter ()

No 1210, BIS Working Papers from Bank for International Settlements

Abstract: How do exchange rates affect global bond portfolios? Using security-level holdings data, we find that euro area investors systematically shed emerging-market and small open-economy sovereign bonds as the US dollar strengthens, confirming the dollar’s role as a global risk factor even for euro-based investors. More distinctively, as the euro strengthens, investors shed bonds denominated in an issuer’s local currency while maintaining exposure to the same issuer’s foreign currency bonds. This behavior is consistent with currency mismatches on investors’ balance sheets. We explain these findings with a Value-at-Risk portfolio choice model that brings out separate roles for local, foreign and reference currencies.

Keywords: Currency mismatch; balance sheet effects; emerging markets; exchange rates; institutional investors; sovereign bonds (search for similar items in EconPapers)
JEL-codes: F31 G11 G15 G23 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-eur, nep-fmk, nep-ifn, nep-ipr, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1210.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1210.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1210

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().