The long and the short of emerging market debt
Claudio Raddatz and
No 5056, Policy Research Working Paper Series from The World Bank
Emerging economies have tried to promote long-term debt because it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. The authors analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Short-termism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.
Keywords: Debt Markets; Emerging Markets; Investment and Investment Climate; Deposit Insurance (search for similar items in EconPapers)
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Working Paper: The Long and the Short of Emerging Market Debt (2010)
Working Paper: The Long And The Short Of Emerging Market Debt (2009)
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