Foreign Participation in Local-Currency Bond Markets

By John D. Burger, F. Warnock. 2004

218 citations recorded by the source corpus.

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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/e5a76a89bee3b994f23d6b6c6be275e02bb7c79e

How researchers see this paper

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In Finance

1. John D. Burger
2. F. Warnock
3. Veronica Cacdac Warnock
4. Barry Eichengreen
5. Pipat Luengnaruemitchai
6. René M. Stulz
7. Bong-Chan Kho
8. G. Karolyi

Citations in the corpus

• Financial Globalization, Governance, and the Evolution of the Home Bias (2006, background): “2 As Burger and Warnock (2004) show for U.S. investors, there is a strong home bias in bond holdings. We ignore this bias in this paper. Portfolio models do not in general predict that investors should hold the world market portfolio of bonds. For instance, in the well-known model of Solnik (1974), ”
• Government Bonds in Domestic and Foreign Currency : The Role of Institutional and Macroeconomic Factors (2007, unknown): “4 In their study, Burger and Warnock (2004) also analyze whether domestic currency bonds are attractive to U.S. investors, plus they estimate a CAPM model to see how much U.S. investors value diversifiable idiosyncratic risk. A related literature has analyzed the development of government bond marke”
• Emerging Local Currency Bond Markets (2012, methodology): “Burger and Warnock (2006) used year-end 2001 bond market data to show that Table 1.”
• Why Doesn't Asia Have Bigger Bond Markets? (2004, background): “Burger and Warnock (2003, 2004) are the studies closest in spirit to our own, but they consider only long-term bonds (not also the short-term bonds considered here) and a subset of the potential determinants of local market issuance.”
• Home bias and international risk sharing: Twin puzzles separated at birth (2007, unknown): “6 Burger and Warnock (2004) find that international bond holdings are much lower than a CAPM benchmark might suggest and that US investors could have obtained better risk-return trade-offs by investing more in foreign bonds during the 1994e2003 period as long as currency risks were hedged.”
• Local Currency Sovereign Risk (2013, unknown): “First, our primary contribution is to present a set of new stylized facts about the LC sovereign risk, contributing to work by Reinhart and Rogoff (2011) on domestic defaults and earlier work by Burger and Warnock (2007) and Burger, Warnock, and Warnock (2012) on pricing the LC debt using bond retur”
• Government Bonds and Their Investors: What are the Facts and Do They Matter? (2012, unknown): “See, among others, Burger and Warnock (2006) or Lane (2006). 20 Also, Krishnamurthy and Vissing-Jorgensen (2008) show that a lower relative supply of Treasuries is associated with wider credit risk spreads.”