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Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China

How does the participation of foreign investors on local bond markets impact the volatility of bond prices and yields? An answer to this question is important for policy makers from emerging markets in their attempts to liberalize access to financial markets. However, empirical literature gives inco...

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Detalles Bibliográficos
Autores principales: Wang, Qian, Gao, Shengting, Li, Jiayin, Leibrecht, Markus
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Elsevier 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10250753/
https://www.ncbi.nlm.nih.gov/pubmed/37303566
http://dx.doi.org/10.1016/j.heliyon.2023.e16658
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author Wang, Qian
Gao, Shengting
Li, Jiayin
Leibrecht, Markus
author_facet Wang, Qian
Gao, Shengting
Li, Jiayin
Leibrecht, Markus
author_sort Wang, Qian
collection PubMed
description How does the participation of foreign investors on local bond markets impact the volatility of bond prices and yields? An answer to this question is important for policy makers from emerging markets in their attempts to liberalize access to financial markets. However, empirical literature gives inconclusive answers to this question. Reasons are that studies analyze diverse types of bonds and apply their analyses to different samples of countries and for different phases in the opening up of markets. We add to existing knowledge by empirically investigating the impact of foreign investors' participation on the volatility of prices of two types of Chinese bonds, government bonds and policy bank bonds, as well as for three stages in the liberalization of the Chinese bond market. We find that foreign investors' participation does not exert significant effects on volatility until late in the opening of the bond market. In addition, we uncover that those bonds which are more influenced by government policies, policy bank bonds, are also more strongly affected by international capital flows. From a policy perspective, our results emphasize the importance of increasing the openness of China's local currency bond market, of stabilizing foreign investors' expectations and, in turn, international capital flows.
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spelling pubmed-102507532023-06-10 Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China Wang, Qian Gao, Shengting Li, Jiayin Leibrecht, Markus Heliyon Research Article How does the participation of foreign investors on local bond markets impact the volatility of bond prices and yields? An answer to this question is important for policy makers from emerging markets in their attempts to liberalize access to financial markets. However, empirical literature gives inconclusive answers to this question. Reasons are that studies analyze diverse types of bonds and apply their analyses to different samples of countries and for different phases in the opening up of markets. We add to existing knowledge by empirically investigating the impact of foreign investors' participation on the volatility of prices of two types of Chinese bonds, government bonds and policy bank bonds, as well as for three stages in the liberalization of the Chinese bond market. We find that foreign investors' participation does not exert significant effects on volatility until late in the opening of the bond market. In addition, we uncover that those bonds which are more influenced by government policies, policy bank bonds, are also more strongly affected by international capital flows. From a policy perspective, our results emphasize the importance of increasing the openness of China's local currency bond market, of stabilizing foreign investors' expectations and, in turn, international capital flows. Elsevier 2023-05-29 /pmc/articles/PMC10250753/ /pubmed/37303566 http://dx.doi.org/10.1016/j.heliyon.2023.e16658 Text en © 2023 The Authors https://creativecommons.org/licenses/by-nc-nd/4.0/This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
spellingShingle Research Article
Wang, Qian
Gao, Shengting
Li, Jiayin
Leibrecht, Markus
Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title_full Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title_fullStr Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title_full_unstemmed Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title_short Do foreign investors affect the volatility of local currency bond prices? Empirical evidence from China
title_sort do foreign investors affect the volatility of local currency bond prices? empirical evidence from china
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10250753/
https://www.ncbi.nlm.nih.gov/pubmed/37303566
http://dx.doi.org/10.1016/j.heliyon.2023.e16658
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