Taming Original Sin Redux: The Role of Benchmark-Driven Flows

We analyze the relative importance of push and pull factors for flows by foreign investors benchmarked to the J.P. Morgan GBI-EM Global Diversified index (B) and by non‑benchmarked investors (NB) in emerging markets (EM) local‑currency sovereign bond markets. We find that global push factors—proxied by the VIX and the U.S. dollar index—are the only statistically significant drivers of B flows whereas domestic pull factors—proxied by the bilateral exchange rate and sovereign credit rating—are the only significant determinants of NB flows. A Heckman selection framework confirms that, once a country enters the index, domestic fundamentals no longer determine the amount of B investment it attracts. Despite holding about one third more assets than B investors, NB investors do not systematically offset B outflows. These findings contribute to the push-pull and original sin redux literatures by showing that B investors transmit global shocks, while NB investors respond more strongly to country-specific shocks. Among domestic investors, central banks and commercial banks tend to act as contrarian investors during risk-off episodes, whereas domestic nonbank investors do not respond systematically. The findings are robust to non-linear specifications, alternative data and different econometric techniques. Benchmark design has become increasingly consequential: B investors’ share of reported foreign holdings rose from 16.9 percent in 2010 to 42.8 percent in 2025. Index membership, the size of each country’s eligible market and the country-weight cap jointly determine how B assets under management are distributed across markets. Because the share of debt eligible for the index also varies widely, B ownership differs sharply relative to local market sizes, exposing some countries more to global shocks. Noting investors rarely switch benchmarks, we show how existing methodologies jointly affect country-universe and constituents’ share decisions, thereby determining B investor concentration and B ownership and turnover relative to domestic market sizes, and degree of exposure to global shocks.