Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Long And The Short Of Emerging Market Debt

Contents:

Author Info

  • Luis Opazo
  • Claudio Raddatz
  • Sergio Schmukler

Abstract

Emerging economies have tried to promote long-term debt since it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. We analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Shorttermism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc530.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 530.

as in new window
Length:
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:chb:bcchwp:530

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Roberto Chang & Andres Velasco, 1999. "Liquidity crises in emerging markets: Theory and policy," Working Paper 99-15, Federal Reserve Bank of Atlanta.
  2. Patrick Bolton & Jose A. Scheinkman & Wei Xiong, 2003. "Executive Compensation and Short-termist Behavior in Speculative Markets," Levine's Working Paper Archive 506439000000000124, David K. Levine.
  3. Sandeep Kapur & Allan Timmermann, 2005. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Birkbeck Working Papers in Economics and Finance 0503, Birkbeck, Department of Economics, Mathematics & Statistics.
  4. Harald Hau & Helene Rey, 2008. "Home Bias at the Fund Level," American Economic Review, American Economic Association, vol. 98(2), pages 333-38, May.
  5. Fernando A. Broner & Guido Lorenzoni & Sergio L. Schmukler, 2013. "Why Do Emerging Economies Borrow Short Term?," Journal of the European Economic Association, European Economic Association, vol. 11, pages 67-100, 01.
  6. Broner, Fernando A. & Gaston Gelos, R. & Reinhart, Carmen M., 2006. "When in peril, retrench: Testing the portfolio channel of contagion," Journal of International Economics, Elsevier, vol. 69(1), pages 203-230, June.
  7. Shleifer, Andrei & Vishny, Robert W, 1990. "Equilibrium Short Horizons of Investors and Firms," American Economic Review, American Economic Association, vol. 80(2), pages 148-53, May.
  8. Gaston Gelos & Eduardo Borensztein, 2000. "A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds," IMF Working Papers 00/198, International Monetary Fund.
  9. Raddatz, Claudio, 2010. "When the rivers run dry : liquidity and the use of wholesale funds in the transmission of the U.S. subprime crisis," Policy Research Working Paper Series 5203, The World Bank.
  10. Jean Tirole, 2003. "Inefficient Foreign Borrowing: A Dual-and Common-Agency Perspective," Levine's Working Paper Archive 506439000000000136, David K. Levine.
  11. Schmukler, Sergio L. & Vesperoni, Esteban, 2006. "Financial globalization and debt maturity in emerging economies," Journal of Development Economics, Elsevier, vol. 79(1), pages 183-207, February.
  12. Laura Alfaro & Fabio Kanczuk, 2009. "Debt Maturity: Is Long-Term Debt Optimal?," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 890-905, November.
  13. Atif Mian, 2008. "Incentives in Markets, Firms, and Governments," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(2), pages 273-306, October.
  14. Allen, Franklin & Gale, Douglas, 1994. "Limited Market Participation and Volatility of Asset Prices," American Economic Review, American Economic Association, vol. 84(4), pages 933-55, September.
  15. Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeromin Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
  16. Mark Aguiar & Gita Gopinath, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 439-452, August.
  17. Laura Alfaro & Fabio Kanczuk, 2006. "Sovereign Debt: Indexation and Maturity," Research Department Publications 4459, Inter-American Development Bank, Research Department.
  18. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  19. Raddatz, Claudio & Schmukler, Sergio L., 2008. "Pension Funds And Capital Market Development:How Much Bang For The Buck?," Policy Research Working Paper Series 4787, The World Bank.
  20. Jeremy C. Stein, 2004. "Why Are Most Funds Open-End? Competition and the Limits of Arbitrage," NBER Working Papers 10259, National Bureau of Economic Research, Inc.
  21. Franklin Allen & Douglas Gale, 1976. "Optimal Financial Crises," Center for Financial Institutions Working Papers 97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
  22. Raghuram G. Rajan, 2005. "Has Financial Development Made the World Riskier?," Working Papers id:248, eSocialSciences.
  23. Castaneda, Pablo, 2006. "Long Term Risk Assessment in a Defined Contribution Pension System," MPRA Paper 3347, University Library of Munich, Germany, revised 30 Apr 2007.
  24. Bleakley, Hoyt C & Cowan, Kevin, 2004. "Maturity Mismatch and Financial Crises: Evidence from Emerging Market Corporations," University of California at San Diego, Economics Working Paper Series qt96r800f1, Department of Economics, UC San Diego.
  25. Robert Holzmann, 1997. "Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence from Chile," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 149-178, June.
  26. Alessandro Missale & Olivier Jean Blanchard, 1991. "The Debt Burden and Debt Maturity," NBER Working Papers 3944, National Bureau of Economic Research, Inc.
  27. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2000. "Managers, investors, and crises : mutual fund strategies in emerging markets," Policy Research Working Paper Series 2399, The World Bank.
  28. Bebchuk, Lucian Arye & Stole, Lars A, 1993. " Do Short-Term Objectives Lead to Under- or Overinvestment in Long-Term Projects?," Journal of Finance, American Finance Association, vol. 48(2), pages 719-29, June.
  29. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  30. Hoyt Bleakley & Kevin Cowan, 2002. "Corporate dollar debt and depreciations: much ado about nothing?," Working Papers 02-5, Federal Reserve Bank of Boston.
  31. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, September.
  32. Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Scholarly Articles 3128707, Harvard University Department of Economics.
  33. Augusto de la Torre & Sergio L. Schmukler, 2004. "Coping with Risks through Mismatches: Domestic and International Financial Contracts for Emerging Economies," International Finance, Wiley Blackwell, vol. 7(3), pages 349-390, December.
  34. Mark, Aguiar & Gopinath, Gita, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," Scholarly Articles 3634155, Harvard University Department of Economics.
  35. Allen, Franklin & Carletti, Elena, 2006. "Mark-to-market accounting and liquidity pricing," CFS Working Paper Series 2006/17, Center for Financial Studies (CFS).
  36. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, World Bank Group, vol. 15(1), pages 23-46, February.
  37. Pablo Castañeda & Heinz Rudolph, 2010. "Portfolio Choice, Minimum Return Guarantees, and Competition in DC Pension Systems," Working Papers 39, Superintendencia de Pensiones, revised Feb 2010.
  38. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Didier, Tatiana & Schmukler, Sergio L., 2013. "Financial development in Latin America and the Caribbean : stylized facts and the road ahead," Policy Research Working Paper Series 6582, The World Bank.
  2. Raddatz, Claudio & Schmukler, Sergio L., 2011. "Deconstructing herding : evidence from pension fund investment behavior," Policy Research Working Paper Series 5700, The World Bank.
  3. Mosolygó, Zsuzsa, 2010. "A tőkefedezeti rendszer alapkérdéseinek új megközelítése
    [A new approach to the basic issues raised by the PAYE system]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 612-633.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:530. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.