Foreign bias in bond portfolio investments the role of economic and non-economic factors and the impact of the global financial and sovereign debt crises

Bibek Bhatta*, Chandra Thapa, Andrew Marshall

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

In this study we examine whether theoretically inconsistent foreign bond allocations are associated with economic fundamentals and/or non-economic behavioural factors. Using panel data for 54 developed and emerging markets spanning a temporal period of 12 years, the results show that non-economic factors, that is, familiarity with foreign markets and behavioural characteristics of source markets, are the stronger drivers of biases in foreign bond allocations. Further, using the recent 2009–2011 European sovereign debt crisis as an experimental set-up, we find that investors reduce their foreign bond allocations during the debt crisis, with the withdrawals being more severe from the most affected countries. We also find that the relevance of familiarity with foreign markets becomes more pronounced during the European debt crisis. However, in case of the recent 2007–2009 global financial crisis, we find no evidence of change in foreign bias by international bond investors.

Original languageEnglish
Pages (from-to)654-681
Number of pages28
JournalEuropean Journal of Finance
Volume24
Issue number7-8
DOIs
Publication statusPublished - 24 May 2018
Externally publishedYes

Fingerprint

Economics
Factors
Portfolio investment
Bond portfolio
Sovereign debt crises
Investors
Familiarity
Debt crisis
Economic fundamentals
Panel data
Global financial crisis
Emerging markets

Keywords

  • economic and non-economic factors
  • Foreign bias in international bond allocations
  • global financial crisis
  • sovereign debt crisis

Cite this

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Foreign bias in bond portfolio investments the role of economic and non-economic factors and the impact of the global financial and sovereign debt crises. / Bhatta, Bibek; Thapa, Chandra; Marshall, Andrew.

In: European Journal of Finance, Vol. 24, No. 7-8, 24.05.2018, p. 654-681.

Research output: Contribution to journalArticle

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