International Portfolio Holdings and Swiss Franc Asset Returns
This Paper revisits the puzzle of low returns on Swiss franc assets using a new dataset of international portfolio holdings at Swiss banks. The main findings are as follows. First, we find that the return anomaly is present only for fixed income assets and not for equity. Second, it is mostly due to a long run deviation from uncovered interest rate parity, not a deviation from purchasing power parity. Third, it is unlikely that foreign demand for Swiss assets (possibly due to banking secrecy) is driving down returns: this demand is quantitatively small especially for Swiss franc fixed income instruments. A dynamic factor analysis confirms that foreign demand had almost no impact on Swiss franc asset prices. Finally, we propose a new explanation for low returns on Swiss fixed income assets, namely the diversification benefits offered by these instruments. Applying reversed portfolio optimization to back out the implied returns reveals that the estimated pattern of this returns conforms very well to the observed pattern.
|Date of creation:||Jul 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Frederic S. Mishkin, 1982.
"Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions,"
NBER Working Papers
1048, National Bureau of Economic Research, Inc.
- Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-57, December.
- Gary Chamberlain & Michael Rothschild, 1982.
"Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets,"
NBER Working Papers
0996, National Bureau of Economic Research, Inc.
- Chamberlain, Gary & Rothschild, Michael, 1983. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Econometrica, Econometric Society, vol. 51(5), pages 1281-304, September.
- Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
- Kugler, Peter & Neusser, K, 1993.
"International Real Interest Rate Equalization: A Multivariate Time-Series Approach,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 8(2), pages 163-74, April-Jun.
- Peter KUGLER & Klaus NEUSSER, 1990. "International Real Interest Rate Equalization: A Multivariate Time Series Approach," Vienna Economics Papers vie9003, University of Vienna, Department of Economics.
- Forni, Mario & Lippi, Marco, 2001.
"The Generalized Dynamic Factor Model: Representation Theory,"
Cambridge University Press, vol. 17(06), pages 1113-1141, December.
- Forni, Mario & Lippi, Marco, 2000. "The Generalized Dynamic Factor Model: Representation Theory," CEPR Discussion Papers 2509, C.E.P.R. Discussion Papers.
- Kugler, Peter & Weder, Beatrice, 2002. "The puzzle of the Swiss interest rate island : stylized facts and a new interpretation," HWWA Discussion Papers 168, Hamburg Institute of International Economics (HWWA).
- Christian Dreger & Christian Schumacher, 2003. "Are Real Interest Rates Cointegrated? Further evidence based on paneleconometric methods," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(I), pages 41-53, March.
- Cumby, Robert E & Obstfeld, Maurice, 1981. "A Note on Exchange-Rate Expectations and Nominal Interest Differentials: A Test of the Fisher Hypothesis," Journal of Finance, American Finance Association, vol. 36(3), pages 697-703, June.
- Fountas, Stilianos & Wu, Jyh-lin, 1999.
"Testing for Real Interest Rate Convergence in European Countries,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 46(2), pages 158-74, May.
- Stilianos Fountas & Jyh-lin Wu, 1998. "Testing for Real Interest Rate Convergence in European Countries," Working Papers 24, National University of Ireland Galway, Department of Economics, revised 1998.
- Modjtahedi, Bagher, 1988. "Dynamics of real interest differentials : An empirical investigation," European Economic Review, Elsevier, vol. 32(6), pages 1191-1211, July.
- Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
- Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000.
"The Generalized Dynamic-Factor Model: Identification And Estimation,"
The Review of Economics and Statistics,
MIT Press, vol. 82(4), pages 540-554, November.
- Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
- Dutton, Marilyn Miller, 1993. "Real interest rate parity new measures and tests," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 62-77, February.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4467. 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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.