Foreign and Domestic Investment in Global Bond Markets

Donghyun Park, Kiyoshi Taniguchi and Shu Tian ()
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Shu Tian: Asian Development Bank

No 535, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Gauging foreign (domestic) biases as the deviation of foreign (domestic) investors’ actual portfolio allocation of a bond market from the same bond market’s weight in global bond market, we investigate the determinants of foreign and domestic investment biases in 41 global bond markets. We find that foreign investors significantly overweigh markets that offer better risk–return profiles. In addition, greater market openness and sound macroeconomic outlook attract foreign investment. Such return driven behavior of foreign investors is especially pronounced in emerging bond markets. Meanwhile, home bias is higher in smaller bond markets. Our evidence sheds some light on the role of regional financial integration on broadening investor base and improving investor profile in emerging markets.

Keywords: bond market; financial integration; home bias; portfolio decisions (search for similar items in EconPapers)
JEL-codes: F30 G11 G15 G20 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2018-01-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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