Foreign Participation in Local Currency Bond Markets

John Burger and Francis Warnock

No 12548, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Countries that cannot attract foreigners to invest in their local currency bonds run the risk of currency mismatches that can result in painful crises. We analyze foreign participation in the bond markets of over 40 countries. Bond markets in less developed countries have returns characterized by high variance and negative skewness, factors that we show are eschewed by U.S. investors. While results based on a three-moment CAPM indicate that it is diversifiable idiosyncratic risk that U.S. investors shun, our analysis suggests that countries can improve foreign participation by reducing macroeconomic instability.

JEL-codes: F3 G11 G15 O16 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
Note: IFM
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Citations: View citations in EconPapers (96)

Published as Review of Financial Economics 16: pp. 291-304 (2007)

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Journal Article: Foreign participation in local currency bond markets (2007)
Working Paper: Foreign participation in local-currency bond markets (2004)
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