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International Financial Issues in the Pacific RimGlobal Imbalances, Financial Liberalization, and Exchange Rate Policy$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2008

Print ISBN-13: 9780226386829

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387086.001.0001

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Bond Markets as Conduits for Capital Flows

Bond Markets as Conduits for Capital Flows

How Does Asia Compare?

(p.267) 9 Bond Markets as Conduits for Capital Flows
International Financial Issues in the Pacific Rim
Barry Eichengreen, Pipat Luengnaruemitchai
University of Chicago Press

This chapter assesses bond markets as a conduit for capital flows. Using bilateral data it analyzes the importance of a range of factors determining nonresident holdings of a country's bonds. By comparing cross-country holdings in Asia with cross-country holdings in other regions, as well as analyzing the determinants of holdings across regions, the extent of bond market integration and how it compares across regions and over time can be determined. The results show that Europe is head and shoulders above other regions in terms of financial integration. Asia already seems to have made some progress on this front compared to Latin America and the world as a whole. Cross-holdings are heavily driven by financial conditions in the investing country, which suggests that bond market conditions could adjust abruptly for reasons having nothing to do with policies in the borrowing economy. Bondholders are attracted to the securities of countries whose returns co-vary with their own, suggesting return chasing rather than diversification behavior.

Keywords:   bond markets, capital flows, Asia, market integration, investments, cross-holdings

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