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Foreign and Domestic Investment in Global Bond Markets

Author

Listed:
  • Park, Donghyun

    (Asian Development Bank)

  • Taniguchi, Kiyoshi

    (Asian Development Bank)

  • Tian, Shu

    (Asian Development Bank)

Abstract

Gauging foreign (domestic) biases as the deviation of foreign (domestic) investors’ actual portfolio allocation of a bond market from the same bond market’s weight in global bond market, we investigate the determinants of foreign and domestic investment biases in 41 global bond markets. We find that foreign investors significantly overweigh markets that offer better risk–return profiles. In addition, greater market openness and sound macroeconomic outlook attract foreign investment. Such return driven behavior of foreign investors is especially pronounced in emerging bond markets. Meanwhile, home bias is higher in smaller bond markets. Our evidence sheds some light on the role of regional financial integration on broadening investor base and improving investor profile in emerging markets.

Suggested Citation

  • Park, Donghyun & Taniguchi, Kiyoshi & Tian, Shu, 2018. "Foreign and Domestic Investment in Global Bond Markets," ADB Economics Working Paper Series 535, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0535
    as

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    References listed on IDEAS

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    Cited by:

    1. Lian Liu & Yuming Cui & Changrong Lu, 2020. "Empirical study on intra‐regional bond investment: an application to East Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 34(1), pages 63-75, May.
    2. Ciccone, Julien & Marchiori, Luca & Morhs, Romuald, 2022. "The flow-performance relationship of global investment funds," Journal of International Money and Finance, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    bond market; financial integration; home bias; portfolio decisions;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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