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Investor sentiment and sovereign bonds

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  • Li, Yulin

Abstract

Investor sentiment is an important driver of sovereign bond returns in emerging markets. Using local sovereign debt and external sovereign debt, this paper finds that sentiment is negatively related to future bond returns on average across emerging market countries. This negative sentiment effect suggests that investors treat emerging market sovereign bonds as risky assets rather than as safe assets. This paper further finds that this sentiment effect is relatively stronger when liquidity frictions are higher, which is consistent with illiquid bonds being generally harder to arbitrage.

Suggested Citation

  • Li, Yulin, 2021. "Investor sentiment and sovereign bonds," Journal of International Money and Finance, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:jimfin:v:115:y:2021:i:c:s0261560621000371
    DOI: 10.1016/j.jimonfin.2021.102388
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    More about this item

    Keywords

    Sovereign bond returns; Investor sentiment; Local currency debt; Foreign currency debt; Emerging markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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