Decomposing the U.S. External Returns Differential / Stephanie E. Curcuru, Tomas Dvorak, Francis E. Warnock.

Format:

Book

Author/Creator:

Curcuru, Stephanie E.

Contributor:

National Bureau of Economic Research.

Dvorak, Tomas.

Warnock, Francis E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15077.

NBER working paper series no. w15077

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

We decompose the returns differential between U.S. portfolio claims and liabilities into the composition, return, and timing effects. Our most striking and robust finding is that foreigners exhibit poor timing when reallocating between bonds and equities within their U.S. portfolios. The poor timing of foreign investors--caused primarily by deliberate trading, not a lack of portfolio rebalancing--contributes positively to the U.S. external returns differential. We find no evidence that the poor timing is driven by mechanical reserve accumulation by emerging market countries; rather, it is driven almost entirely by the poor timing of rich, developed (mainly European) countries. Finally, while poor foreign timing appears to be persistent across subsamples, other terms in our decomposition (the composition and return effects and U.S. timing abroad), as well as the overall differential, are sometimes negative, sometimes positive, and usually indistinguishable from zero.

Notes:

Print version record

June 2009.