Two tales of foreign investor outflows: Italy in 2011-2012 and 2018

This paper focuses on the Italian bond market tensions in 2018, one of the most severe episodes of financial turbulence in the euro area since the peak of the sovereign debt crisis in 2011-12. It provides a detailed description of foreign investor outflows during that episode, and it also looks more systematically at the behaviour of euro-area investors in foreign and domestic securities throughout all the episodes of (acute or mild) financial turmoil in the euro area from 2009 to 2018, using data disaggregated by holder sector and country and issuer country. We show that the outflows in the 2018 episode differed in several respects from those recorded in 2011-12, and cannot be considered as a `sudden stop'. Our broader analysis of investor behaviour during episodes of financial turmoil suggests that there is limited heterogeneity across investor categories. All foreign holders tend to pull out of a country during episodes of sovereign market stress, while domestic investors tend to repatriate their funds, although to a lesser extent since 2014.