Foreign Participation in Emerging Markets’ Local Currency Bond Markets
20 Pages Posted: 12 Apr 2010
Date Written: April 2010
This paper estimates the impact of foreign participation in determining long-term local currency government bond yields and volatility in a group of emerging markets from 2000-2009. The results of a panel data analysis of 10 emerging markets show that greater foreign participation in the domestic government bond market tends to significantly reduce long-term government yields. Moreover, greater foreign participation does not necessarily result in increased volatility in bond yields in emerging markets and, in fact, could even dampen volatility in some instances.
Keywords: Bond markets, Capital inflows, Cross country analysis, Emerging markets, Foreign investment
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