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Searching for Yield Abroad: Risk-Taking Through Foreign Investment in U.S. Bonds

John Ammer, Stijn Claessens (), Alexandra M. Tabova and Caleb Wroblewski

No 1224, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The risk-taking effects of low interest rates, now prevailing in many advanced countries, "search-for-yield," can be hard to analyze due to both a paucity of data and challenges in identification. Unique, security-level data on portfolio investment into the United States allow us to overcome both problems. Analyzing holdings of investors from 36 countries in close to 15,000 unique U.S. corporate bonds between 2003 and 2016, we show that declining home-country interest rates lead investors to shift their portfolios toward riskier U.S. corporate bonds, consistent with "search-for-yield". We estimate even stronger effects when home interest rates reach a low level, suggesting that risk-taking further accelerates.

Keywords: Low interest rates; Risk-taking; Search for yield; Portfolio choice; Corporate debt; Unites States (search for similar items in EconPapers)
JEL-codes: F21 F34 G11 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2018-03-28
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1224

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DOI: 10.17016/IFDP.2018.1224

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