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The Effects of Foreign Investor Composition on Colombia’s Sovereign Debt Flows

Author

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  • Fredy Gamboa-Estrada
  • Andrés Sánchez-Jabba

Abstract

Assessing the composition of sovereign debt holders is important because investors’ behavior varies according to distinctive components, including shareholders’ preferences, regulatory constraints, and profitability mandates. To study this issue, we examine the determinants of offshore investments of mutual funds and pension funds, which concentrate Colombia’s outstanding sovereign debt. Our results indicate that mutual funds exhibit considerable sensitivity to shocks in global factors, such as the Federal Funds Rate, sovereign risk, and the composition of financial indices. This contrasts with findings among pension funds, for which we detected no statistically significant effects when examining these factors, underlining the differences in foreign investor behavior that could impact sovereign debt flows within emerging markets. **** RESUMEN: La composición de la base inversionista en el mercado de deuda soberana es importante porque el comportamiento de los inversionistas varía según distintos factores, como las preferencias de los accionistas, las restricciones regulatorias y los mandatos de rentabilidad, que pueden afectar los flujos en este mercado. Para evaluar lo anterior, examinamos los determinantes de las inversiones en deuda soberana de los fondos de inversión y los fondos de pensiones extranjeros en Colombia. Nuestros resultados indican que los fondos de inversión muestran alta sensibilidad a choques en factores globales, como la tasa de política de la Reserva Federal, el riesgo soberano y la composición de índices financieros. Ello contrasta con los hallazgos para los fondos de pensiones, que no presentan una respuesta estadísticamente significativa al examinar estos factores, aspectos que resaltan las diferencias en el comportamiento de los inversionistas extranjeros en mercados emergentes.

Suggested Citation

  • Fredy Gamboa-Estrada & Andrés Sánchez-Jabba, 2022. "The Effects of Foreign Investor Composition on Colombia’s Sovereign Debt Flows," Borradores de Economia 1222, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1222
    DOI: 10.32468/be.1222
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    More about this item

    Keywords

    Foreign investors; sovereign debt flows; global shocks; generalized method of moments; inversionistas extranjeros; flujos de deuda soberana; choques globales; método generalizado de momentos;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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