Template-Type: ReDIF-Paper 1.0
Author-Name: Kristy Jansen
Author-X-Name-First: Kristy
Author-X-Name-Last: Jansen
Author-Name: Hyun Song Shin
Author-X-Name-First: Hyun
Author-X-Name-Last: Song Shin
Author-Name: Goetz von Peter
Author-X-Name-First: Goetz
Author-X-Name-Last: von Peter
Title: Which exchange rate matters to global investors? 
Abstract:How do exchange rates affect the asset allocation of bond portfolio investors? Using detailed security-level holdings, we find that euro area-based investors systematically shed sovereign bonds as the dollar strengthens, confirming the role of the dollar as a global risk factor even for euro-based investors. More distinctively, they also shed local currency bonds when the euro strengthens, due to currency mismatches on their own balance sheets. There is no such effect for foreign currency bonds of the same sovereign issuers. These findings are consistent with a Value-at-Risk portfolio choice model that brings out separate roles for local, foreign and reference currencies. 
Creation-Date: 2024-09
File-URL: https://www.bis.org/publ/work1210.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1210.htm
File-Format: text/html
Number: 1210
Keywords: Currency mismatch, balance sheet effects, emerging markets, exchange rates, institutional investors, sovereign bonds
Classification-JEL: F31, G11, G15, G23
Handle: RePEc:bis:biswps:1210