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A Signal of Imperfect Portfolio Capital Adjustments from the Relationship Between Yields of Domestic and Foreign Colombian Debt

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  • Luis Eduardo Arango
  • Yanneth R.Betancourth

Abstract

In this paper we check the relationschip between the yields of the Colombian bonds traded in the (secondary) internal market and the yields of the sovereign global securities for the sample period 1999-2001. The hypothesis we maintain is that, under the assumption of capital mobility, it should exist a comovement between the two yields that we effectively find. However, the results suggest that capital mobility is much less than perfect. By invoking concepts of immunization and duration we find evidence of a TAR adjustment cointegration between the two yields plus a constant risk premium for bond with maturity in 2003 and a symmetric adjustment cointegration between the yields of securities with maturity in 2004. Since the assets are issued by the same issuer (the Colombian Government) the country or credit risk is the same for the bonds we consider that the risk premium is purely connected to currency risks: exhange- rate and inflation risks. Key words: yield, interest parity, capital mobility, nonlinearities, cointegration, threshold adjusment.

Suggested Citation

  • Luis Eduardo Arango & Yanneth R.Betancourth, 2002. "A Signal of Imperfect Portfolio Capital Adjustments from the Relationship Between Yields of Domestic and Foreign Colombian Debt," Borradores de Economia 216, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:216
    DOI: 10.32468/be.216
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    Cited by:

    1. Diego Alejandro Martínez Cruz & José Fernando Moreno Gutiérrez & Juan Sebastián Rojas Moreno, 2015. "Evolución de la relación entre bonos locales y externos del gobierno colombiano frente a choques de riesgo," Borradores de Economia 919, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    yield; interest parity; capital mobility; nonlinearities; cointegration; threshold adjusment.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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