Foreign and Domestic Investment in Global Bond Markets

28 Pages Posted: 8 Jun 2018

See all articles by Donghyun Park

Donghyun Park

Asian Development Bank - Economic Research

Kiyoshi Taniguchi

Asian Development Bank

Grace Tian

Asian Development Bank

Date Written: January 2018

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.

Keywords: bond market, financial integration, home bias, portfolio decisions

JEL Classification: F30, G11, G15, G20

Suggested Citation

Park, Donghyun and Taniguchi, Kiyoshi and Tian, Shu, Foreign and Domestic Investment in Global Bond Markets (January 2018). ADBI Working Paper 535. Available at SSRN: https://ssrn.com/abstract=3188492 or http://dx.doi.org/10.2139/ssrn.3188492

Donghyun Park (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Kiyoshi Taniguchi

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Shu Tian

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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