A Signal of Imperfect Portfolio Capital Adjustments from the Relationship Between Yields of Domestic and Foreign Colombian Debt
AbstractIn this paper we check the relationschip between the yields of the Colombian bonds traded in the (secondary) internal market and the yields of the sovereign global securities for the sample period 1999-2001. The hypothesis we maintain is that, under the assumption of capital mobility, it should exist a comovement between the two yields that we effectively find. However, the results suggest that capital mobility is much less than perfect. By invoking concepts of immunization and duration we find evidence of a TAR adjustment cointegration between the two yields plus a constant risk premium for bond with maturity in 2003 and a symmetric adjustment cointegration between the yields of securities with maturity in 2004. Since the assets are issued by the same issuer (the Colombian Government) the country or credit risk is the same for the bonds we consider that the risk premium is purely connected to currency risks: exhange- rate and inflation risks. Key words: yield, interest parity, capital mobility, nonlinearities, cointegration, threshold adjusment.
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Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 216.
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- Luis Eduardo Arango & Yanneth R. Betancourt, 2002. "A Signal Of Imperfect Portfolio Capital Adjustments From The Relationschip Between Yields Of Domestic And Foreign Colombian Debt," BORRADORES DE ECONOMIA 001934, BANCO DE LA REPÚBLICA.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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