What makes a sovereign bond a safe asset is not the strength of its fundamentals in absolute terms but their strength relative to the alternatives, together with the size of the debt outstanding -- …
PublishedAmerican Economic ReviewOnline 1 Nov 2025Published Nov 2025
The paper develops a two-country preferred-habitat model in which currency and bond markets are populated by different investor clienteles — currency traders with price-elastic demand for foreign …
PublishedQuarterly Journal of EconomicsOnline 23 Jun 2025Published Oct 2025
Why do observed international investment positions and cross-country differences in rates of return to capital fail to conform to a frictionless capital-market benchmark? The paper asks how large the …
Cross-currency basis swap spreads are widely read as a post-crisis anomaly in which covered interest parity has broken down; this paper argues the opposite -- that a swap dealer who priced a …
PublishedClassicJournal of Economic LiteraturePublished Nov 2007
The literature's standard finding -- that countries with open capital accounts do not grow faster -- tests a prediction the neoclassical growth model never makes, because in that model liberalization …
Shifts in global risk appetite move not just the middle of the emerging-market capital-flow and return distributions but their left tails, and usually the left tail more. Estimating panel quantile …
PublishedClassicReview of Financial StudiesOnline 30 Aug 2011Published Nov 2011
Sorting currencies into six portfolios by their forward discounts, this paper shows that a single return-based factor -- the return on the highest minus the return on the lowest interest rate currency …
PublishedClassicThe Journal of FinanceOnline 24 May 2018Published Jun 2018
Covered interest rate parity, the no-arbitrage cornerstone of currency forward pricing, is shown to be systematically and persistently violated among G10 currencies after the 2008 crisis, in ways that …
PublishedClassicEconomic ModellingOnline 28 May 2022Published Sep 2022
In a calibrated neo-classical growth model, moving from financial autarky to integration raises consumption most in the first years after opening, so the standard infinite-horizon Hicksian welfare …
PublishedClassicJournal of Economic LiteraturePublished Mar 2013
A survey of why international investors hold a disproportionate share of domestic equities, bonds and bank assets ("home bias") despite the diversification gains foreign holdings would offer, …
At the end of 1989 Japanese investors held 1.9 percent of their equity abroad, US investors 6.2 percent and British investors 18 percent. Inverting a standard portfolio first-order condition, the …
PublishedClassicThe Journal of FinanceOnline 11 May 2016Published Jun 2016
Emerging-market governments that borrow in their own currency still pay a measurable default premium: stripping out currency risk with cross-currency swaps leaves a "local currency credit spread" …
PublishedClassicJournal of Financial EconomicsPublished Apr 2021
Macroprudential rules on banks' foreign currency exposure do what they are meant to do -- cross-border FX borrowing by banks falls by roughly a third, and bank stock returns become markedly less …
The first present-value estimates of creditor losses for all 180 sovereign debt restructurings with foreign banks and bondholders between 1978 and 2010 -- average haircut 37%, with half the cases …
PublishedClassicJournal of International EconomicsPublished May 2022
A country's macroprudential stance looks irrelevant to portfolio flows on average, but that average hides the tails. Countries with tighter ex-ante regulation see larger bond and equity outflows in …
US court rulings in Republic of Argentina v. NML Capital moved the market-implied probability that Argentina would default on its restructured bonds without carrying any news about the Argentine …
PublishedClassicJournal of International EconomicsPublished Sep 2017
Brazil's IOF tax on foreign portfolio inflows was announced overnight and without warning, which makes it readable in stock prices. Two-day cumulative abnormal returns for listed Brazilian firms fall …
Measured firm by firm from accounting and stock-market data rather than imputed from national accounts, the marginal product of capital really is higher in poorer countries -- but inflation-adjusted …
PublishedClassicIMF Economic ReviewOnline 14 Feb 2020Published Mar 2020
US monetary tightening raises the probability of a banking crisis abroad, but only where the exposure to the United States is direct -- heavy bilateral trade or large dollar-denominated liabilities. …
PublishedClassicReview of Economic StudiesOnline 8 May 2020Published Nov 2020
A single global factor extracted from a large panel of risky asset prices traded around the world falls sharply after a US monetary contraction, alongside deleveraging by global banks, a rise in …