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A Signal Of Imperfect Portfolio Capital Adjustments From The Relationschip Between Yields Of Domestic And Foreign Colombian Debt

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  • Luis Eduardo Arango

    ()

  • Yanneth R. Betancourt

Abstract

In this paper we check the relationship 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 bonds 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 risks is the same for the bonds we consider that the risk premium is purely connected to currency risks: exchange-rate and inflation risks.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 001934.

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Length: 20
Date of creation: 31 Aug 2002
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Handle: RePEc:col:000094:001934

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Keywords: Yield;

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  1. Tesar, Linda L., 1991. "Savings, investment and international capital flows," Journal of International Economics, Elsevier, vol. 31(1-2), pages 55-78, August.
  2. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
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  10. Baxter, Marianne, 1994. "Real exchange rates and real interest differentials: Have we missed the business-cycle relationship?," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 5-37, February.
  11. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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