The Long and the Short of Emerging Market Debt

54 Pages Posted: 20 Apr 2016

See all articles by Luis Opazo

Luis Opazo

Central Bank of Chile

Claudio E. Raddatz

University of Chile, School of Economics and Business

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Date Written: September 1, 2009

Abstract

Emerging economies have tried to promote long-term debt because it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. The authors analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Short-termism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.

Keywords: Debt Markets, Emerging Markets, Investment and Investment Climate, Deposit Insurance

Suggested Citation

Opazo, Luis and Raddatz, Claudio E. and Schmukler, Sergio, The Long and the Short of Emerging Market Debt (September 1, 2009). World Bank Policy Research Working Paper No. 5056, Available at SSRN: https://ssrn.com/abstract=1476698

Luis Opazo

Central Bank of Chile ( email )

Publicaciones
Huerfanos 1185
Santiago
Chile

Claudio E. Raddatz

University of Chile, School of Economics and Business ( email )

Diagonal Paraguay 257, Of. 1206
Santiago, R. Metropolitana 7520421
Chile

HOME PAGE: http://alum.mit.edu/www/craddatz

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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