Up From Sin: A Portfolio Approach To Financial Salvation
In this paper, we develop a proposal with the potential to greatly improve the ability of developing countries to reduce their exposure to other countries´ interest rate and exchange rate volatility and to lower their cost of raising capital abroad. The key to achieving these goals is for developing countries to borrow in their own currencies and for investors to lend by creating portfolios of local-currency government debt securities that employ the risk management technique of diversification to generate a return-to-risk that competes favourably with other major capital market security indices. We show, based on data from the early 1990s, that a portfolio of emerging market local currency debt can generate rates of return relative to risk that compete with those of major securities indices in international capital markets. It bears noting that the early 1990s witnessed several severe shocks to international capital markets, including the crises in East Asia, the Russian Federation and Brazil, and the failure of Long-Term Capital Management. We also analyse the implications of deploying such a policy for attracting capital to developing countries, the impact on the stability of their financial systems and on their costs of borrowing, and the implications for future development of local capital markets.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Palais des Nations, CH - 1211 Geneva 10|
Phone: +41 22 907 12 34
Fax: +41 22 907 00 43
Web page: http://www.unctad.org/Templates/Page.asp?intItemID=2101&lang=1
More information through EDIRC
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.:
- Gerard Caprio & Patrick Honohan, 2008.
Department of Economics Working Papers
2008-07, Department of Economics, Williams College.
- Gerard Caprio, Jr. and Patrick Honohan, 2008. "Banking Crises," The Institute for International Integration Studies Discussion Paper Series iiisdp242, IIIS.
- Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
- Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001.
"Why do countries float the way they float?,"
Journal of Development Economics,
Elsevier, vol. 66(2), pages 387-414, December.
- Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications 4205, Inter-American Development Bank, Research Department.
- Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," IDB Publications (Working Papers) 6467, Inter-American Development Bank.
- Enrica Detragiache & Asli DemirgÃ¼Ã§-Kunt, 1998.
"Financial Liberalization and Financial Fragility,"
IMF Working Papers
98/83, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:unc:g24pap:34. 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: (Joerg Mayer)
If references are entirely missing, you can add them using this form.