Determinants of Financial Market Spillovers The Role of Portfolio Diversification, Trade, Home Bias, and Concentration
This paper defines financial market spillovers as the comovement between two countries' financial markets and analyzes financial market spillovers over the period 2001-12 through four channels: bilateral portfolio investment, bilateral trade, home bias, and country concentration. The paper find...
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| Format: | eBook |
| Language: | English |
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Washington, D.C.
International Monetary Fund
2014, 2014
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| Series: | IMF Working Papers; Working Paper
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| Collection: | International Monetary Fund - Collection details see MPG.ReNa |
| Summary: | This paper defines financial market spillovers as the comovement between two countries' financial markets and analyzes financial market spillovers over the period 2001-12 through four channels: bilateral portfolio investment, bilateral trade, home bias, and country concentration. The paper finds that, if a country has a large amount of bilateral portfolio exposure in another country, these two countries' comovement of bond yields are large. Also, countries' geographical preferences impact financial spillovers; if a country has a stronger home bias, the country could have less spillovers from foreign financial markets. A policy implication from this result is that, if countries become less home-biased and have a greater amount of portfolio investment assets, they should strengthen prudential regulations to mitigate against rising risks of financial spillovers (or risk greater volatility owing to comovement with foreign markets) |
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| Physical Description: | 24 p. |
| ISBN: | 1498365620 9781498365628 |