The Impact of Foreign Investor Flows on Emerging Market Local Currency Bonds

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2012
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Haverford College. Department of Economics
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Thesis
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Award
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eng
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Open Access
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Abstract
Driven by the desire to reduce the currency mismatch associated with foreign-currency borrowing, Emerging Market countries have developed their local currency bond markets over the past decade. As foreign investors have increased their participation in this asset class, some risks remain. This paper analyzes the impact of foreign investment flows on local-currency bond yields of 16 countries from 2006-2011. Results indicate that foreign investor inflows reduce borrowing costs, but outflows are associated with greater volatility during the financial crisis.
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