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Searching for Yield Abroad : Risk-Taking Through Foreign Investment in U.S. Bonds

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Abstract

The risk-taking effects of low interest rates, now prevailing in many advanced countries, \"search-for-yield,\" can be hard to analyze due to both a paucity of data and challenges in identification. Unique, security-level data on portfolio investment into the United States allow us to overcome both problems. Analyzing holdings of investors from 36 countries in close to 15,000 unique U.S. corporate bonds between 2003 and 2016, we show that declining home-country interest rates lead investors to shift their portfolios toward riskier U.S. corporate bonds, consistent with \"search-for-yield\". We estimate even stronger effects when home interest rates reach a low level, suggesting that risk-taking further accelerates.

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  • John Ammer & Stijn Claessens & Alexandra M. Tabova & Caleb Wroblewski, 2018. "Searching for Yield Abroad : Risk-Taking Through Foreign Investment in U.S. Bonds," International Finance Discussion Papers 1224, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1224
    DOI: 10.17016/IFDP.2018.1224
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    Cited by:

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    2. Claudio Borio & Piti Disyatat & Phurichai Rungcharoenkitkul, 2018. "What Anchors for the Natural Rate of Interest?," PIER Discussion Papers 98, Puey Ungphakorn Institute for Economic Research.
    3. Martijn Boermans & Viacheslav Keshkov, 2018. "The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration," DNB Working Papers 590, Netherlands Central Bank, Research Department.
    4. Wilson, Christian & Caldecott, Ben, 2023. "Investigating the role of passive funds in carbon-intensive capital markets: Evidence from U.S. bonds," Ecological Economics, Elsevier, vol. 209(C).
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    6. Kučera, Adam, 2020. "Identification of triggers of U.S. yield curve movements," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Low interest rates; Risk-taking; Search for yield; Portfolio choice; Corporate debt; Unites States;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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