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The determinants of the volatility of returns on cross-border asset holdings

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  • Faruk Balli
  • Syed Abul Basher
  • Faisal Rana

Abstract

Using both panel and cross-sectional models for 28 industrialized countries observed from 2001 to 2009, we report a number of findings regarding the determinants of the volatility of returns on cross-border asset holdings (i.e., equity and debt). Greater portfolio concentration and an increase in assets held in emerging markets lead to an elevation in earning volatility, whereas more financial integration and a greater share held in Organization for Economic Cooperation and Development countries and by the household sector cause a reduction in the return volatility. Larger asset holdings by offshore financial corporations and non-bank financial institutions cause higher market volatility, although they affect volatility in the equity and bond markets in the opposite way. Overall, both panel and cross-sectional estimations provide very similar results (albeit of different magnitude) and are robust to the endogeneity problem.

Suggested Citation

  • Faruk Balli & Syed Abul Basher & Faisal Rana, 2014. "The determinants of the volatility of returns on cross-border asset holdings," CAMA Working Papers 2014-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2014-01
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    2. Balcılar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat, 2015. "Regional and global spillovers and diversification opportunities in the GCC equity sectors," Emerging Markets Review, Elsevier, vol. 24(C), pages 160-187.
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    4. Conterius, Simeon & Akimov, Alexandr & Su, Jen-Je & Roca, Eduardo, 2023. "Do foreign investors have a positive impact on the domestic government bonds market? A panel pooled mean group approach," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 863-875.

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    More about this item

    Keywords

    Asset return volatility; financial integration; international portfolio choice; asset holdings; endogeneity bias;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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