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A signal of imperfect portfolio capital adjustments from the domestic and foreign Colombian debt

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  • Luis Arango
  • Yanneth Betancourt

Abstract

This paper studies the relationship between the yields of the Colombian bonds traded in the domestic (secondary) market and the yields of the sovereign global securities traded abroad during 1999-2001. The hypothesis successfully tested is that, under capital mobility, a comovement should exist between the two yields. However, the results suggest that capital mobility is not perfect. By invoking concepts of duration and immunization evidence is found of an M-TAR adjustment cointegration between the two yields plus a constant risk premium for bonds with maturity in 2003 and a symmetric adjustment cointegration plus a risk term between the yields of securities with maturity in 2004. Since these assets are issued by the same issuer (the Colombian Government) the credit risk is the same for them while the study considers that the risk premium is purely connected to currency risks produced by exchange-rate and inflation risks.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 9 ()
Pages: 587-597

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:9:p:587-597

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  1. Meese, R. & Rogoff, K., 1988. "Was It Real? The Exchange Rate-Interest Differential Ralation Over The Modern Floating-Rate Period," Working papers 368, Wisconsin Madison - Social Systems.
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