Foreign participation in local-currency bond markets

No 794, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We analyze the development of, and foreign participation in, 49 local bond markets. Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. Less developed bond markets have returns characterized by high variance and negative skewness, factors eschewed by U.S. investors. Results based on a three-moment CAPM indicate, however, that it is diversifiable idiosyncratic risk that U.S. investors appear to shun. Taken as a whole our results hint at a virtuous cycle of bond market development: Creditor friendly policies and laws can spark local bond market development that enables the development of derivatives markets and, in turn, attracts foreign participation.

Keywords: bond; markets (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ifn and nep-rmg
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Related works:
Journal Article: Foreign participation in local currency bond markets (2007)
Journal Article: Foreign participation in local currency bond markets (2007)
Working Paper: Foreign Participation in Local Currency Bond Markets (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:794

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