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Currency matters: Analyzing international bond portfolios

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  • Burger, John D.
  • Warnock, Francis E.
  • Warnock, Veronica Cacdac

Abstract

Bonds denominated in the investor's currency are special. We show this indirectly in a global dataset of bilateral bond holdings—indirectly because the global holdings dataset does not differentiate by currency denomination—and then more directly in datasets of US holdings of foreign bonds that do differentiate by currency. We find that the share of a country's bonds denominated in investors' currencies is an important determinant of the amount of cross-border investment it receives; factors associated with greater (or less) cross-border investment in bonds differ by currency denomination; and one phenomenon of international portfolios—the ever-present home bias—in some cases actually disappears when bonds are denominated in the investor's currency, suggesting that the home bias is to some extent a home currency bias.

Suggested Citation

  • Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2018. "Currency matters: Analyzing international bond portfolios," Journal of International Economics, Elsevier, vol. 114(C), pages 376-388.
  • Handle: RePEc:eee:inecon:v:114:y:2018:i:c:p:376-388
    DOI: 10.1016/j.jinteco.2018.08.001
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    More about this item

    Keywords

    Home bias; International bonds; International investment;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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